A LEADING consumer advocate has called for a new Bank of Ireland deposit product to be banned.
The call came after Bank of Ireland launched a savings account that allows customers to earn some interest free of tax.
The three-year account offers a rate of 2.4pc in the first year and no Deposit Interest Retention Tax (DIRT) on the first €480 earned in interest. However, the interest rate in years two and three is variable, meaning the bank gets to decide on what it will be.
A special term account is one where consumers can get some of the interest tax-free.
Savers have to put aside between €5,000 and €20,000 into what the bank is calling Special Term Account 3, from which no withdrawals are allowed over the three years.
Consumer advocate Brendan Burgess who founded Askaboutmoney.com said people would have to lock money away for three years, but would only have the interest rate fixed for one.
After that, consumers are at the mercy of the bank, he said.
"A three-year bond, but the rate is only fixed for the first year. This must be banned," he said.
Damian Young, the head of deposits at Bank of Ireland, said banking legislation in relation to special term accounts meant the bank was unable to fix the rate in years two and three.
"While we are clearly meeting our obligations under the Consumer Protection Code, we are bound and restricted by specific legislative conditions of this product, which are as frustrating to us as they are to customers," he said.
Mr Young added that customers are entitled to remove their funds, with no penalty from Bank of Ireland, after year one.
But he added that if they do this they will lose the special term account status, which means that DIRT is payable for the interest paid up to that date.
This means there would be little incentive for people to break out of the three-year account.
Mr Young added: "It would make little sense for Bank of Ireland to provide a year-two rate that is adverse to prevailing market rates at this time."
He said the product offers an incentive for customers to receive interest of up to €480 per annum DIRT-free.
The DIRT rate is 33pc.