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26 Jan

Where to now for savers?

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Those words of wisdom are particularly apt in the context of the European Central Banks decision to cut their lending rates on Tracker Mortgages. It's natural that those who have these mortgages rejoice at seeing monthly instalments decrease but as my former physics teacher pointed out there is an equal and opposite reaction.
The reaction in this instance is the fall in rates currently being offered by the banks. If you have money on deposit the fact is that saving rates have more than halved from a high of over 5% AER two years ago. The knock on effect is that banks here are trying to shore up their balance sheets and so the ECB rate cuts has a negative reaction on deposit rates.
DIRT Rate Increase
With decreased interest rates the Government in their wisdom have decided to increase DIRT to a punitive 41% or even 45% for some people who have unearned income from rent, deposits and dividends of over €3174 each year. Subsequently, up to half of the miniscule interest you receive from the banks is taken in tax - bearing in mind that this money (in most cases) has already been taxed as income tax!
DIRT free deposits accounts for those aged 65 and over
These accounts allow you to receive any interest earned on money on deposit, paid to you without the deduction of DIRT, where you satisfy certain conditions:
• Are aged 65 or over?
• If married or in a civil partnership the total annual income for you and your spouse/partner will be below the relevant annual exemption limit.
• Exemption limit for a single person is €18,000p.a. and for married/civil partnership is €36,000p.a.
So what are the best options out there for savers who don't want to take any risk?
Currently the best fixed term annual deposit rates on offer are between 2% and 2.25%. Depending on how long you want to tie up your money for PTSB offer 2.25% AER (annual equivalent rate which should always be used when comparing different rates.) They offer this rate over 16, 18 and 24 month periods and I believe it's a rate that won't be around for long so well worth looking into if if you are DIRT exempt.

What about An Post DIRT Free Accounts?
An Post is traditionally the home of the saver who wants their money safe and exempt from DIRT but they too has been forced to reduced their rates. They do become an attractive home for your money if you're looking to investment over a medium to long term of between 4 to 10 years but short term you're better looking to the bank rate of 2.25% AER if you are DIRT exempt.
For those who are willing to take a risk with their money there are some very good protected equity funds in the markets place that would protect 70%, 80% or even 90% of the highest point your investment reaches. At the same time these funds allow you a certain 'safety blanket' if markets turn but I would recommend you speak to a Qualified Financial Advisor in relation to your options here before making any decisions.
Finally, be aware that banks are now starting to offer Tracker Bond products that guarantee your capital and allow you access to the markets. The reality here is that this ties your money up for 5 years (or more) and in most cases you don't make any money - you just get your original capital back! You should make a point of fully familiarising yourself with the terms and conditions of tying your money up for a short term period. Remember, if you need access to it, the bank will penalise you – so read the small print.
For every action there is an equal and opposite reaction
We live in strange economic times and one man's meat is another man's poison. When I hear good news in the media I immediately think of my old physics teacher and wonder what is the equal and opposite reaction to this good news story?

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