Saturday 25 March 2017

Solidarity bond aims to raise cash for hard-pressed State

Charlie Weston Personal Finance Editor

THE Government launched a new savings scheme yesterday aimed at ordinary taxpayers and charities. It will help to fund the national debt.

Finance Minister Brian Lenihan said the new National Solidarity Bond would pay interest of 1pc a year for up to 10 years, with an additional tax-free bonus of 40pc for those who leave their money invested for the full term.

The bond will be sold through 1,200 post offices or online from Tuesday.

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 said yesterday that the annual equivalent rate (AER) 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.

The bond, which comes under the management of the National Treasury Management Agency but will be marketed by An Post, will have a minimum investment of €500.

However, people will have the option of avoiding this minimum amount by paying at least €25 a month. The maximum an individual can invest will be €250,000, with a €500,000 maximum for joint applicants.

Children can invest in the new bond, provided that their parents or guardians give their written consent.

Money put into the bond can be withdrawn by giving seven days' notice but the 1pc will only be applied annually.

There will be no penalty for early withdrawals and there are no commissions or charges for buying the bond.

Mr Lenihan said: "This bond is an innovative product from which everyone can benefit. Investors can play their part in supporting the economy through this bond, which will help to fund the capital investment programme and develop important and necessary infrastructure, which in turn will help to create the conditions for the creation of additional employment."

Trade unions and the Labour Party had been pushing for a national solidarity bond as a way of encouraging investment in the economy.

A number of analysts said yesterday the return on An Post savings certificates, at 3.53pc a year if left invested for five-and-a-half years, was superior to the return on the new bond.

Expressed in gross terms, the An Post savings certs pay 21pc over five-and-a-half years, compared with 15pc for five years with the new bond.

More information on the new National Solidarity Bond will be available at www.statesavings.ie.

Irish Independent

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