Hunt out the best rates -- let your cash do the hard work
We're losing out on hundreds of millions in interest every year by having our money in the wrong accounts, writes Louise McBride
Irish households have almost €100bn sitting in savings accounts -- but these days could well be numbered.
It now looks like there could be €5bn in spending cuts and higher taxes on the cards in December's Budget -- almost twice the €3bn previously expected. So it will be a lot harder to put money away.
Furthermore, the tax you pay on the interest earned on your savings -- Deposit Interest Retention Tax (DIRT) -- could be about to go up again. The DIRT rate has already increased from 20 per cent to 23 per cent in January 2009, and from 23 per cent to 25 per cent in April 2009. Small wonder that the amount of tax we pay on our savings is expected to hit €630m this year -- almost four times the amount collected during the boom year of 2005.
At times like this, it makes sense to squirrel away whatever money you can into worthwhile savings accounts. Many of us haven't done that so far though. Almost €17.6bn in savings -- about a fifth of the money being saved by Irish households -- is sitting in accounts that earn little or no interest. If your money is in this low-interest savings pot, you could earn as little as 75 interest on €10,000 after a year.
THE WORST HOME
FOR YOUR SAVINGS
You can lose hundreds of euro a year -- or thousands if you've got €100,000 or more saved -- in interest by having your money in the wrong account (see panel).
The interest rate on demand deposit accounts, where you can withdraw your money at any time, can be as low as 0.01 per cent. AIB's demand deposit account pays 0.01 per cent interest on savings of up to €63,399; BoI pays the same rate on savings up to €99,999; and Permo pays it on up to €25,394.75. Ulster Bank's Easy Access savings also has an interest rate of 0.01 per cent. EBS Building Society pays 0.03 per cent interest on up to €100,000 in savings held in its instant access account.
"People feel they need automatic access [to their savings] without been aware of the price consequence," said Harry Slowey, of FinanceOne, the deposit broker which owns the savings website, www.irishdeposits.ie.
"The cheaper banks buy money through demand deposits, current accounts and so on, the more money they make."
BEST HOME FOR A QUICK WITHDRAWAL
To get the best interest rates for money left on demand deposit, you either have to take your chances with the beleaguered Anglo Irish Bank or Irish Nationwide -- or head to a foreign-owned bank.
Anglo's Premium Demand account pays 3.1 per cent interest on savings of up to €100,000 and Irish Nationwide's Instant Access account pays 3.25 per cent on up to €20,000.
Nationwide UK's Easy Access Savings account pays 3.15 per cent interest on savings of €2,000 or more. National Irish Bank's eSaver pays three per cent interest. However, if you withdraw money from eSaver, the rate is cut to one per cent for the months you made the withdrawals in.
WHAT'S THE CATCH?
When there's a good interest rate on an account, watch out -- there's usually a catch. You must either tie up your money for a while or agree to give your bank a certain amount of notice before making withdrawals. You might also have to open an internet account.
Nationwide UK's 12-month fixed-rate account pays 3.4 per cent interest on €3,000 or more -- but you can't withdraw any money from the account for a year. Investec's Euro account pays three per cent interest if you can save €20,000 for six months, nine months or a year -- but the interest rate is lower if you don't open an online account.
AIB's Online Notice Deposit 7 account pays three per cent interest on up to €10,000 -- as long as you give seven days' notice for withdrawals.
Bank of Ireland's One Year Bonus account pays three per cent interest -- but only if you can save at least €5,000 for a year without withdrawing money.
EBS's nine-month fixed account pays 3.52 per cent interest on savings of between €20,000 and €500,000 -- but you can't make any withdrawals or additional lodgments for nine months.
Permo's 40-day notice account pays three per cent interest on savings of €10,000 or more -- but unless you give 40 days' notice for withdrawals, you'll be hit with an "early withdrawal charge".
Ulster Bank's one-year fixed deposit account pays 3.5 per cent interest on savings of €15,000 or more -- as long as you can lock it away for a year.
One of the best interest rates available is the 3.96 per cent a year paid by the State's National Solidarity Bond -- but you must tie up your money for 10 years to get it.
The interest paid on certain regular savings accounts is also attractive -- but again, only if you can play by the rules. EBS's Family Savings Account pays four per cent interest if you save between €100 and €1,000 a month for a year -- and don't make more than two withdrawals a year. Permo's 21-day regular saver account, which requires 21 days notice for withdrawals, pays 3.75 per cent interest -- so long as your balance doesn't go over €50,000.99. If it does, a rate of 1.5 per cent applies to the balance.
AIB's Regular Saver account pays 3.5 per cent interest on monthly savings of between €10 and €500 but this rate falls to one per cent after a year.
Bank of Ireland's Dual Saver account pays 3.5 per cent interest on monthly savings of between €100 and €1,000 -- but once the balance on this account reaches €5,000, that €5,000 is transferred into a lump sum account which pays only one per cent interest.
Ulster Bank's regular savings account -- the Special Interest Deposit account -- pays four per cent interest on monthly savings of between €1 and €1,000. However, the four per cent rate is only paid on savings up to €15,000 -- any balance over that amount only earns 1.5 per cent interest.
Even if you do snatch one of the best interest rates around, keep an eye on it -- after a few weeks or months, it could change to a fraction of the one you initially got.
This is particularly the case with notice and regular saver accounts. For example, in late December, Permo will cut the interest rate on its 21-day regular saver account from 3.75 per cent to 3.5 per cent for savings up to €50,000.99.
The interest rate on fixed-term accounts cannot change for a certain amount of time, but chances are it will roll over into a low-interest account after the fixed term is up. And don't expect your bank to tell you when the fixed term has expired.
"Many fixed-term accounts automatically roll over into demand accounts when they mature," said Michael Kiernan, chief executive of the authorised advisers, myadviser.ie. "The rate on that rollover account might not be that great. You usually don't get a notification from your bank to tell you that your savings have rolled over into another account. It's not in the bank's interest to inform everyone that the great rate they once offered isn't there anymore."
It's also important to be wary of headline rates in savings advertisements. Bank of Ireland's Fixed-Term Reward account advertises a headline rate of 4.5 per cent -- but as this rate applies over 18 months, the annual rate of interest is actually 2.98 per cent.