Business Personal Finance

Sunday 21 January 2018

Find the spot to really help your piggy bank grow

Charlie Weston looks at ways to give your savings added punch

Tips to help drive your savings upwards
Tips to help drive your savings upwards
Charlie Weston

Charlie Weston

Governments impose a punitive tax (41pc) on interest income (DIRT) and many banks scarcely pay any interest.

This means that between earnings-potential and the ability to hold on to the funds, the options are very limited.

But Frank Conway, founder of the Irish Financial Review and the MoneyWhizz.org website, reckons there are ways to squeeze a cent or two from the current market.

"To really look at what consumer choices really exist, you should consider all of the consumer options, not just deposits and savings accounts," he says.

Deposits

In the deposit arena, there are only a few options open to consumers that really pay market-leading interest income.

For example, the UK savings giant, Nationwide UK (Ireland) offers up to 4pc before the 41pc DIRT (deposit interest retention tax) is applied on its regular saver account.

KBC, the expanding brand, also offers some good deals for regular savers with gross 3.5pc offers (before DIRT), followed by Permanent TSB, which promotes a 2.5pc deal.

"So the real challenge is on earning some interest income and actually holding on to it as DIRT will reduce the earnings significantly," Mr Conway says.

Lump sums

In the other area of deposits, lump sum returns generally are very low.

For example, the best deals on the market are on offer from Rabo Bank but with rates generally at the 1.95pc to 1.75pc range before DIRT.

This makes for pretty limited interest income options.

Some of the RaboDirect deals have access restrictions of between 90 days and 30 days with one of the accounts offering instant access.

The interesting feature of RaboDirect is that it has an online operation here. So, for those that like to transact face-to-face, these offers are not for them (Rabo doesn't operate a branch network in Ireland anyway).

Of the Irish savings institutions, Permanent TSB offers one of the better deals on the market for lump sum savers with a 1.75pc offer. But it is an online-only deal.

State savings deals

What about the State Savings (DIRT-free) and National Solidarity Bond deals? Despite being free of DIRT, the various State deals on offer via An Post don't make for very appealing offers, Mr Conway says.

"While the concept of DIRT-free may earn some headlines, the reality is that these products stopped offering any meaningful return on deposit some time ago and are a shadow of their former selves," he says.

If you look at the four-year National Solidarity Bond (Issue 5) you will find that the AER (annual equivalent rate, which is the real measure of return) on this deal is just 0.99pc (or 4pc gross).

The three-year Savings Bond (Issue 16) offers even less at 0.83pc, or 2.5pc gross.

Digital divide

One issue that depositors have to watch out for is the digital divide and this is where some institutions offer their best interest rates for deposits. As pointed out earlier, RaboDirect.ie beats the market generally but its deals are only available via online banking simply because it operates purely as an online bank.

But AIB too, as well as Permanent TSB, advertise deals that are only available online.

So those shopping for the best deals need to check the fine print.

Not everyone is entirely comfortable with online banking (especially after the Ulster Bank online fiasco of recent years). This online trick applies across both lump sum and regular saver accounts.

DIRT exempt

One important development in the most recent Budget was the introduction of DIRT-free savings for first-time buyers that are savings for the deposits towards their new homes.

While the specific details on how the DIRT will be verified and refunded for qualifying accounts are hazy, the move will come as a welcome reprieve to those who will benefit from the initiative.

Pension contributions

This is the other side of savings that can sometimes be omitted from the narrative.

Pension contributions are nothing more than tax-efficient savings schemes, and today they probably represent one the best savings deals on the market for those with qualifying income.

When managed properly, income goes into an approved pension plan before income tax, can grow tax free and a percentage of income can exit a pension plan tax free .

Of course, on the downside is the impact of fees and charges and this is something that consumers must watch out for carefully as these can significantly negate the overall potential for personal pension fund growth.

Many pension providers are now prepared to negotiate and reduce charges in order to win business.

Irish Independent

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