Interest paid on new State Savings to increase for first time in 16 years

State Savings interest rates have not increased for 16 years. Stock image

Charlie Weston

THE interest paid on new State Savings products has been increased for the first time in 16 years.

It follows six rate rises by the European Central Bank (ECB).

The interest rates being paid on the National Solidary Bonds, issued from this week, Savings Certs and Instalment Savings are going up by between 0.54 percentage points and 0.35 percentage points.

The popular savings products are sold through post offices.

It is the first time since August 2007 that the rates on the tax-free savings products have gone up. In the meantime there have been seven cuts in the Sate Savings rates.

The move is set to put more pressure on banks to increase their savings interest rates.

They have been accused of pocketing billions by parking consumer and business savings with the ECB while paying little or nothing in interest on household and company deposits.

The rate on new National Solidary Savings Bonds is going from 0.96pc for the current issue to 1.50pc for new ones. This is a 10-year product.

If the National Solidarity bond is held for 10 years the total return is 16pc, but on an annual equivalent rate (AER) basis the return for new Solidarity Bonds is 1.5pc a year.

The six-year Instalment Savings rate is going from 0.63pc a year for ones invested in up to now, to 0.98pc (AER) for those saving into this now.

And the five-year Savings Certs issued from this week will have an annual rate of 0.98pc, up from 0.59pc.

There is no change in the fund paid out on Prize Bonds, or rate on the three-year Savings Bonds.

Returns on all these products, that are issued by the National Treasury Management Agency (NTMA) but sold by An Post, are tax free.

The Dirt (deposit interest rate tax) rate on bank and credit union savings is 33pc.

But most banks are paying little or nothing on savings.

Since the last rate reduction in 2021, State Savings balances have increased by around €2bn to just short of €25bn.

In the past, banks have admitted lobbying the State to have the interest paid on state savings – which are sold through post offices – reduced as they claimed they were at a competitive disadvantage in the battle for savers’ cash.

Chairman of the Consumers’ Association of Ireland Michael Kilcoyne had called for the rates to rise.

He had said the failure of the NTMA to increase the interest rates on the State Savings products was “an abuse” of people who were seeking security of putting money into the funds.

State Savings form part of the national debt of the country which is managed by the NTMA.

The last two years we have seen more money going into Prize Bonds and the Post Office Savings Bank accounts compared to State Savings fixed-term fixed-rate products.

Last year the money put into Prize Bonds and Post Office Savings Bank account increased by €600m, while fixed-term products increased by €100m.

There is around €150bn in savings in banks and credit unions, with banks able to deposit much of these funds in the ECB.