Wednesday 7 December 2016

Tracker bonds facing higher tax rate than banks due to DIRT increase

Charlie Weston Personal Finance Editor

Published 15/12/2010 | 05:00

PEOPLE who put money into tracker bonds are set to be taxed at a higher rate than those who have money in a bank or building society.

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This is because deposit interest retention tax (DIRT) is set to jump by two percentage points to 27pc from the start of next year for most deposit savings accounts.

But for accounts where interest is paid less than annually the DIRT rate will rise to 30pc.

This is set to impact on tracker bonds, which are investments where the term is fixed for between three and six years and interest is usually not paid until the end of the term.

Typically the bulk of your money is invested in a deposit-based account and the rest is invested in the stock market.

The part that is invested in the stock market will offer a return based on the performance of a stock-market index or mix of indices. You will usually have to invest a minimum of €5,000.

Encourage

Personal finance experts said the move to put a higher DIRT rate on deposit-type investments where the interest was paid less frequently than once a year was an attempt to encourage people to spend more.

Meanwhile, November saw a rise in the number of people squirreling away cash and the amount they saved amid growing uncertainty about the economy, the latest Nationwide UK (Ireland) Savings Index shows.

The index increased by six points to 89pc in November while the percentage of people who felt government policy was encouraging them to save rose to 13pc, the highest level recorded since January of this year.

Despite the increase in the overall Savings Index, the percentage of people who are saving regularly actually decreased in November from 40pc to 34pc. At the same time, there was an increase in the percentage of people not saving at all, from 27pc to 33pc.

When asked how they might allocate any money over and above their everyday needs, 59pc of respondents would use it to pay off their debts, an increase from 57pc in October, while only 9pc would choose to spend the extra cash, down from 11pc last month.

Irish Independent

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