€50m invested in state bond scheme despite criticisms
Published 22/06/2010 | 05:00
AROUND €50m has been pumped by consumers into the Government's new national solidarity bond, despite criticism of the investment scheme.
The bond will pay 1pc a year, before tax, with additional tax-free bonus payments for those who stay invested for five, seven and 10 years.
The tax-free bonus is 40pc for those who keep the bond for a decade, giving a gross return of 50pc. This means that €1,000 invested for the full 10 years will grow to €1,475.
But the bond will only be worth investing in if the money is left in it for at least seven years, director of financial consultants Technical Guidance Tony Gilhawley has calculated.
An Post savings bonds and certs offer a better return over five and six years, he said. Despite this criticism there has been a surge of money invested in the bond, a spokesman for the National Treasury Management Agency (NTMA) said. The agency designed the bond, which is marketed through 1,200 post offices.
The bond was launched at the end of April. "We are very pleased with the take-up of the bond.
"We have already seen tens of millions of euro going into it and we expect the level of investment to increase significantly in the months ahead," the NTMA said.
The spokesman would not say exactly how much has been invested in the solidarity bond, but the Irish Independent understands it to be around €50m. In what is a somewhat complicated structure, the bond will pay a 1pc "coupon" or interest each year. This will be subject to DIRT (deposit interest retention tax) of 25pc.
In addition to this coupon, there will be a series of tax-free bonus payments.
If the bond is held for five years, the bonus will be 10pc, with a bonus of 22pc for seven years. Those who hold the bond for the full 10 years will earn a tax-free bonus of 40pc.
Analysts have said that the annual equivalent rate for those who hold the bond for five years would work out at 2.6pc a year after tax. Over 10 years, the net or after-tax return will be 3.96pc a year.