Banks to lobby for lower rates on state savings schemes
BANKS are expected to put pressure on the Government to again reduce the interest rates paid on tax-free state savings schemes to deter savers from putting all their cash in the schemes.
A rise in the tax on savings in banks, from 33pc to 41pc in the new year, is set to make tax-free state savings schemes good value again.
Large numbers of PAYE workers will also face paying pay related social insurance (PRSI) on their interest earnings for the first time from January.
Experts said the new combined tax of 45pc on bank deposits would mean state savings are now good value.
Banks have admitted to lobbying to have the rates cut. Last December, the interest on such schemes was reduced and again in June this year. The summer cut saw the interest paid come down by 40pc in some cases.
Some €15bn of householder savings are in state schemes, which are sold in post offices but issued by the National Treasury Management Agency (NTMA).
The three-year State savings bonds pay an equivalent annual interest rate of 1.31pc.
Actuarial consultant Tony Gilhawley, of Technical Guidance, has worked out that a saver would need to get an annual interest rate from a bank of 2.37pc to match this.
This is because the saver will be paying deposit interest retention tax (DIRT) and PRSI on the savings interest paid by the bank.
The five-year Savings Certs pay an equivalent annual interest rate of 2.11pc. Mr Gilhawley has worked out that a saver would need a gross interest rate of 3.71pc from the bank to match this.
Simon Moynihan of price comparison website Bonkers.ie said: "In terms of return over three years, the three-year savings bond is now the best savings account out there."
He said someone who put €10,000 into the state savings bond would clear €401 after the three years.