The bankers win again and the rest of us lose out...
Published 12/06/2016 | 02:30
Blame the bankers. The interest rate paid on State Savings schemes and the fund used for pay-outs on Prize Bonds have been slashed - and the bankers will be delighted.
Around one in five of every euro in the savings of households are in these schemes, which are controlled by the National Treasury Management Agency and sold by An Post.
That amounted to an impressive €19.5bn last year - up €400m on the previous year.
It is not hard to see why.
For the most, part the returns from money put into these schemes are tax free. There are few enough ways for middle-income people to avoid paying tax.
In Britain, there is extensive investment in ISAs - individual savings accounts. Payments into these account are made from after-tax income, but the account is exempt from income tax and capital gains tax on the investment returns, and no tax is payable on money withdrawn from the scheme either.
The latest assault on the returns on State Savings schemes here is the fifth time in four years that the interest rates and the Prize Bond pay-out fund have been reduced.
Interest paid on a string of the popular State Savings schemes have been reduced, by up to half in some cases.
Now those taking out the latest issue of Savings Bonds will get the equivalent just 0.33pc a year.
The interest cuts include those on the two versions of the National Solidarity Bond, which was introduced during the worst of the financial crisis in a bid to encourage householders to fund the Exchequer.
The 10-year version of the Solidarity Bond will now pay out 16pc over a decade, down from 25pc. This works out at 1.5pc a year, down from 2.26pc. The return is tax free.
If you invested in the first issue of the National Solidarity Bond in 2010 you would be getting the equivalent of almost 4pc a year.
The cuts reflect the continued fall in international interest rates and the drop in the cost to the State of raising funds on the market, the NTMA says.
But there is also a sense of the State doing the bankers' bidding.
Banks are known to have lobbied the Government in the past in a bid to force reductions in the rates paid out on State Savings schemes.
You can bet your bottom dollar that the bankers are celebrating this latest move by the NTMA.
It will give them carte blanche to go on cutting their own deposit rates.
As well as having the highest variable mortgage rates in the Eurozone, our banks pay the stingiest savings rates.
Sometimes it is easy being a banker in this country.
Sunday Indo Business