Tax on savings rises to 37pc in double whammy
SAVERS are set to get clobbered with an effective hike in DIRT tax to 37pc.
The deposit interest retention tax (DIRT) is to jump from 30pc to 33pc from January 1, 2013.
It went up by the same amount last year.
And people with money in banks, credit unions and building societies will also be hit by having to pay pay related social insurance (PRSI) for the first time from the start of 2014.
PRSI, which is 4pc, is already paid by the self-employed on interest earned on savings.
Now from 2014 PAYE (pay as you earn) workers and pensioners will have to pay PRSI on any interest they earn on their savings.
This combination of higher DIRT of 33pc and PRSI will mean the combined tax to the State on savings will jump to 37pc.
Someone with €10,000 in a bank savings account getting 2.5pc in interest should earn €250 before tax.
Up to the end of this year a person with €10,000 in savings would have got €175 in interest, after tax.
From the start of next year DIRT will jump to 33pc. This will mean €82.50 in tax on the interest earned.
When DIRT of 33pc is applied, along with PRSI, the two taxes will amount to €92.50, from 2014 on. This will mean a net €157 in interest.
Households have around €92bn in savings in banks, according to the Central Bank.
There is another €16bn in An Post savings bonds, certs and deposit accounts.
Half of those aged over 25 have a deposit account for their savings.
The hike in the tax on savings, and the move to impose PRSI on interest income for all, is set to make An Post savings bonds and certs more attractive. These products pay high interest and are tax-free.
Banks have been cutting interest rates on deposits since the summer, and have been lobbying hard lately to have the interest rates paid on An Post savings certs and bonds reduced by the Government.
The banks, with many of them now state-owed, feel they are at a competitive disadvantage to the tax-free schemes marketed by An Post.
Money experts said yesterday that the Government may have decided to hit savers as a way to free up cash for spending.
Finance Minister Michael Noonan may also be responding to a recent survey that found that trust in an institution is even more important than the interest rate that can be earned.
According to a survey from IrishDeposits.ie, a company that gives consumers advice about savings products, almost four out of 10 adults said trust was the reasons they had chosen a bank or building society rather than putting their money where they will earn a higher interest rate.