Blow for savers as interest on tax-free schemes is slashed
SAVERS have received a massive blow after the interest paid on the tax-free savings schemes was cut sharply.
The move comes just two weeks ahead of another hike in the savings tax to 33pc.
Some €15bn of householder savings have been squirrelled into the state-savings scheme sold by An Post, but operated by the National Treasury Management Agency (NTMA).
Interest rates are coming down today by between 0.35pc and 1pc.
Savers who put money into the tax-free state-certs scheme were able to get tax-free interest of 3.56pc a year for five years.
This would mean an existing saver with €10,000 in state- savings certs will get €352 a year in interest, with no deposit interest retention tax (DIRT) taken way.
But from now on someone who puts money into savings certs will get €70 less a year.
Banks had engaged in a fierce lobbying campaign to have the savings rates on state schemes cut.
They have been reducing savings rates on their own products since the summer, and the interest they pay is taxed.
A spokesman for the Irish Banking Federation said it was unfair that state-savings schemes had higher interest rates and no tax on some of the products. There is no tax on savings bonds, savings certs and instalment savings, while the bonus on National Solidarity Bonds is also tax free.
As well as being free of DIRT tax these products paid some of the highest interest rates in the country.
But from today the interest paid on savings certs, savings bonds, four-year and 10-year National Solidarity Bonds, instalment savings, demand accounts and deposit account plus will see sharp falls.
Those who have already signed up for the bonds, certs, National Solidarity Bonds and instalments savings will not see their interest rates cut.
But anyone taking out these products from now will be hit.
However, the rates for existing savers who have the demand account and the deposit account plus will fall.
From the start of January the DIRT-tax rate on savings in banks, building societies and credit unions will go from 30pc to 33pc.
And from January 2014, everyone will also have to pay PRSI on the interest they get from savings in banks.
A spokesman for the NTMA said it was the first change in interest rates since 2007, and came at a time when interest rates in general were falling.
He said: "The new rates reflect changes in the wider market for savings products and continue to offer savers a competitive return on their money over periods of up to 10 years."
All state-savings money is placed directly with the Government.