Wednesday 1 March 2017

The many savings products provided by An Post

Charlie Weston outlines the safest options

If you have a few bob to invest or put on deposit and are being encouraged by your bank manager or financial adviser to put it into a tracker bond or some such account, ask them this simple question: "Where would you advise your mother to invest her money?"

The truth is that most of them would whisper to their mammies that An Post's savings bonds or certificates are an absolute no-brainer.

With An Post bonds, you get 3.23pc a year or 10pc over the three-year period of the bond. And that is tax-free.

Saving certs have to be held for five-and-a-half years and the annual rate works out at 3.53pc -- or 21pc over the full five-and-a-half years. Again, that is tax free.

Remember that all deposit accounts are subject to DIRT (deposit interest retention tax) of 27pc unless you are over 65 and your income is less than €20,000 a year (€40,000 for a couple).

Income subjected to DIRT is not subjected to other tax, such as the income levy.

With a tracker bond, the gains will be taxed at 28pc.

That means you would need a gross annual return of 4.3pc from a deposit account to match the return from An Post's bonds, because of the DIRT tax.

With a tracker bond, you would need to get an annual return of 4.6pc to match the An Post return, because of the impact of the tax.

Furthermore, there is no penalty for exiting the An Post products. For savings certs, interest is calculated on a six-monthly basis and no interest is paid if they are encashed within six months of purchase.

For An Post bonds, interest is calculated on an annual basis and no interest is paid if they are encashed within the first year.

With many tracker bonds, it can be impossible to get out before the term is up

Rates

Yes, there are good deposit rates out there, with Investec's online 3.6pc one-year fixed rate the best of the lot (there is a €20,000 minimum), but even this can't match the offering from the post office.

There is a maximum of €120,000 that can be put into the bonds and the certs at any one time and €240,000 for joint holdings. The minimum investment amount is €100 for bonds and €50 for savings certs.

And the bonds and certs are state-guaranteed.

Put €1,000 into a bond for three years and you will have €1,100 at the end of the term -- and you will not owe the Revenue anything.

State schemes

With some of the best interest rates and no or very low tax, it should come as little surprise that the savings schemes offered by the State are popular.

About one out of every €10 in household savings in this country has been stuffed into An Post products.

Savings bonds

Savings bonds, available through post offices, offer 3.23pc a year over three years with the added advantage of there being no tax imposed on this. You would need to get 4.42pc from a bank to match this rate. Early withdrawal is possible but it is subject to interest penalties.

If you are prepared to lock your money away for four years then you can get an annualised return of 3.31pc from the four-year version of the National Solidarity Bond.

A slightly complicated product, the National Solidarity Bond is structured with 1pc in interest paid every year -- with this subject to DIRT. If you remain invested for the four years you get an 11pc tax-free bonus at the end of the term.

Savings certs

Worth considering, too, are savings certificates, which are sold in post offices.

These are for a five-year and six-month term, with an annualised return that works out at 3.53pc.

Early withdraw is possible but is subject to interest penalties. Interest is accrued each six months from date of purchase. You can withdraw at any time during the term but you will lose any interest that has yet to be accrued.

Solidarity bond

Many people were turned off the National Solidarity Bond, which was launched a little over a year ago, because the only way to get the full benefit from it was to leave your money invested for 10 years.

The bond, which is sold through post offices, is now available in a four-year version, offering a return of 15pc.

This works out at an equivalent of 3.56pc a year before tax.

Another problem with the bond is that it is structured in quite a complicated way.

You get an annual interest payment of 1pc, but you have to pay DIRT on that.

On top of this there is a tax-free bonus of 11pc if you hold the bond for the full four years.

The fact that the annual interest payment of 1pc is taxed, means that the after-tax annual average return falls to 3.31pc.

If you can get in before the four years are up you must give seven days' notice, but you will lose the 11pc termination bonus.

The minimum investment is €100 and the most you can put in is €250,000.

10-year investment

With the 10-year version of the National Solidarity Bond, you must stay invested for a decade to get the most out of it.

Again, there is a 1pc annual payment which is subject to DIRT

Hang in for the full 10 years and you get a 40pc bonus.

The net after tax return is 47.3pc. This works out at an annual 3.95pc.

The minimum investment is €100 and the maximum for an individual is €250,000 (or €500,000 from two or €750,000 from three joint applicants).

If you do not have €100 to invest there is a facility to save through regular lodgments.

You can access your money at any time by giving seven days' notice, and there are no fees, charges or sales commissions..

Irish Independent Supplement

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