Business

Thursday 30 March 2017

Banks put An Post's haven for savers under pressure

SAVERS face a dilemma in the coming months.

Falling deposit interest rates have been a feature of the banking market since the summer, particularly for money that is on demand.

And last week's Budget delivered another hammer blow for savers. The deposit interest retention tax (DIRT) is to shoot up from 30pc to 33pc from the start of January.

Minister for Finance Michael Noonan also said that pay related social insurance (PRSI), which is 4pc, will apply to interest earned on savings from January, 2014.

There is some €92bn in household savings in banks and building societies here.

One option for savers would be to put more money into the state savings schemes sold by An Post. These bonds and certs have eye-watering interest rates and are tax free.

Some €17bn is invested in savings products sold by An Post. But pressure is coming from the banks, many of which are state-owned, for the Government to force down the interest on the tax-free bonds and certs.

That is likely to happen.

This means that it will be increasingly hard for savers to get decent returns.

Some advisers reckon savers will need to lock money away for longer, and maybe even take on some risk by investing in investment funds.

That was the view of Andrew Milligan, head of global strategy at Standard Life Investments, who spoke at a conference in Dublin yesterday.

He warned that eurozone rates, and bank deposit rates, will keep falling next year.

Decision time for savers.

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