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Savers facing rate cuts of up to 40pc in State schemes

STATE savings schemes will be hit by huge cuts in interest rates after banks put pressure on the Government to lower them.

Tens of thousands of savers flocked to the State schemes in recent years after mistrust of the banks grew, and an average of €1bn is now invested in such products each year.

But while savers who have already bought into schemes will continue to enjoy their agreed interest rates, future investors will be sold products at a lower interest rate from today, meaning a lower return on their money.


The National Treasury Management Agency (NTMA), which manages the country's borrowings, is cutting the interest paid on products it sells through An Post by more than 40pc in some cases.

Although the schemes generally involve long investment periods such as five and 10 years, they were attractive to savers who have come to distrust main street banks.

The new lower rates will only affect new savings products sold through An Post.

Following the changes, someone investing €10,000 in a five-year bond will earn €1,110 compared with €1,500 before.

Investing €10,000 in a 10-year bond will bring interest of €3,500 instead of €4,500.

Simon Moynihan – of financial website Bonkers.ie – said while the latest cuts are comparable to the declines this year in the rates offered by retail banks, there are now few attractive savings options for consumers.

The European Central Bank has reduced its key lending rate to an all-time low of 0.5pc, but the scale of the cuts being introduced by the NTMA are certain to catch savers by surprise.

They include a 43pc cut in the interest rate for a three-year savings bond; a 44pc cut in a four-year national solidarity bond; a 27pc cut in a five-year savings certificate, and a 22pc cut in 10-year national solidarity bonds.

Banks have been putting pressure on the Government to cut the interest rates on NTMA products sold through An Post because they are more attractive than what the institutions are offering.

Meanwhile, the Government ruled out exemptions to the property tax for people in financial hardship on the basis it would risk creating a "flood of applicants" and make administration of the tax extremely difficult.

Internal records show the Department of Finance and Revenue Commissioners earlier this year thought about introducing such a measure.

But senior officials warned that an organised campaign of 'hardship applications' would seriously affect the total tax collected.