Tuesday 27 September 2016

Charlie Weston: It's time savers got a break

Banks are paying a pittance in interest, then almost half of what is paid is lost in tax - it's time savers got a break

Published 25/02/2016 | 02:30

Abolishing the €500 note would allow a further cut in nominal interest rates
Abolishing the €500 note would allow a further cut in nominal interest rates

With little or nothing being paid by banks in interest, and savage levels of tax being imposed, you would think that savers were doing something wrong and needed to be punished.

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Couple that with calls at EU level for the abolition of the €500 note.

Abolishing the largest notes would allow a further cut in the level of nominal interest rates because it would make the storage of cash considerably more expensive or difficult.

It seems that savers are always and everywhere under attack at the moment.

What this official policy aims to do is to get us to spend our savings.

We need to set up a Society for the Protection of Savers (SPS), to safeguard the laudable and sensible activity of saving.

Saving is necessary to fund education, essential for our financial security, and plays a key role in the purchase of a home.

Banks are paying a pittance in interest.

New deposit rates dropped to just 0.21pc at the end of December, compared with a euro area average of 0.65pc, according to the Central Bank.

Some banks are paying as little as 0.01pc.

The interest being paid on savings is down by 74pc in the last six years, calculations by price comparison site Bonkers.ie show.

And rates may fall further, given the trend towards negative rates across Europe.

The European Central Bank already charges banks for depositing money with it.

If domestic banks react to this by charging negative interest rates, then more money will be pumped into property, further squeezing out first-time buyers, and funds also stored under mattresses.

That is why there is pressure to get rid of €500 notes - known by some as Bin Ladens because the terrorist had some of them sewn into his robes when he was shot by American forces.

Then there is the disgraceful level of tax imposed on saving, an activity that should be spared high taxes.

A gravity-defying level of taxation of 45pc is levied on any interest you earn.

This is made up of DIRT (deposit interest retention tax) of 41pc and PRSI (pay related social insurance) of 4pc. Pensioners do not have to worry about PRSI.

Despite the pincer movement of banks paying hardly anything to savers, and punitive levels of taxation, we Irish continue to save like our lives depend on it.

The €95bn in household savings that is sitting in banks works out at an average of almost €60,000 in savings per household.

What that means is that ordinary people are defying the best efforts of the Government and the ECB to force them to spend their money.

Memories are still strong of the trauma of shaky banks that had to be bailed out and the need to have a stash of cash somewhere after the housing collapse, as the worst recession in the history of the State prompted a raft of new taxes and charges.

The best advice for householders is to continue to defy the buggers and keep saving.

If you have €10,000 to save and are prepared to leave it sit for a year, then the best rate is from Nationwide UK (Ireland) on its Loyalty 12-Month Fixed Rate. It pays 1.15pc. That will mean a return of €115 before tax, and €67.85 after tax, according to calculations by Bonkers.ie.

KBC pays 1.10pc on its 12-Month Fixed Rate Account, with Permanent TSB paying 0.75pc.

For those prepared to put their savings away for three years, then the State Savings Bond, available through the post offices, is the best bet.

It pays an annual equivalent rate (AER) of 0.83pc. Crucially, there is not tax imposed on this account. So the net and gross return are the same at €250 after three years.

You will get a rate of 1.10pc from the KBC 36-Month Deposit account. This will leave you with €335 before tax, but €197 after DIRT tax.

Irish Independent

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