How to cut your losses on the interest on your savings S

Sunday Independent October 20 2013
Vive Les Chinese!
Chinese car giant Dongfeng is thought to be
having a bit of a goo at French motor giant
Peugeot, with a view to buying a stake in the
Gallic get-abouts.
Europe’s second-largest automaker is
considering selling stakes to both Dongfeng and
the French government to shore up funding as
car sales in the region plunge to a 20-year low.
Ryanair’s Competition
The rise in online
revenues that
Sunday Indo owner
INM achieved over
the past year
as it seeks to
drive and
develop digital
Norwegian Air, Europe’s third-biggest low-cost
carrier, is going to have a stab at long-haul routes, as
Ryanair and Easyjet sit on their hands. Norwegian
Air Shuttle AS will fly to JFK, Los Angeles and
Florida next year. One-way fares will start at a
mouth-watering stg£149 (€176). Ryanair’s Michael
O’Leary has been talking about setting up a long-haul
outfit for the last five years. It seems he’s all mouth.
Home insurance
While you’ll get a weenchy tax break for
doing up your house, you’ll still have to
find a way of paying for the work.
There’s a really staggering difference in
the prices charged by the big, well known
players and the smaller, craftier online firms.
Cover for a semi-detached home in Co Kilkenny worth €300,000.
Fully alarmed, buildings cover of €200,000, 20 per cent contents
cover. For a 48-year-old couple. Excess €300. Five years’ claims
Best: Chrome Insurance €193.00 per year
Avoid: Axa €689.00
Saving: €496.00 a year
contact: or 1890 247 663
Car insurance
Petrol prices didn’t go up, which
means that the car will still get a
bit of use. Yay. It’s about the only
thing that we can afford to do now
as a hobby. Fully comprehensive
cover for a 34-year-old male from Dublin 15, driving a
2004 Audi A4 1.9 diesel worth €7,000. No points or claims.
Excess €300. Parked on road.
Best: €491.00 per year
Avoid: Aviva €801.00 per year
Saving: €310.00 a year
contact: or 1890 484 848
The banks got hit with a €150m levy for
their role in trashing the economy. That’s
about a millimetre of their combined
normal operating profits, so they’ll be
laughing themselves silly over how lightly they’ve escaped. Banks
will whack up fees and charges, so we’ll pay for it. Don’t go near
your bank if it tries to sell you products like mortgage protection.
Cover for a €300,000 loan over 25 years reducing with mortgage
balance. Applicants are a pair of smoking 40-year-olds.
Best: Irish Life €86.93 per month
Avoid: New Ireland €101.09 per month
Saving: €169.92 a year
contact: or 1890 987 817
Life cover
The economics of smoking are becoming
starker and starker. Soon puffing on a
fag will be the sole preserve of rock stars
and billionaires. Life cover of €350,000
for a 35-year-old male smoker. Cover in
place up to retirement at 65.
Best: Irish Life €59.38 per month
Avoid: Aviva €68.80 per month
Saving: €113.04 a year
contact: or 1890 987 817
First-time buyer
The builders’ lobby groups must have been
amazing as the construction sector did the
best out of the Budget. Let’s ramp up
construction again... what could possibly go wrong? Repayments
on a First Time Buyer Mortgage of €250,000 over 25 years,
with a loan to value of 75 per cent. Variable Rate.
Best: KBC €1,318.00 per month
Avoid: Danske Bank €1,455.00 per month
Saving: €1,644.00 a year
contact: or 1800 51 52 53
How to cut your losses on
the interest on your savings
AVERS were one of
the biggest losers in
last Tuesday's
Budget. Finance
Minister Michael Noonan’s
decision to hike savings tax
yet again means that most
people will lose almost half
of the interest they make on
their hard-earned savings
from the start of 2014.
The DIRT (Deposit
Interest Retention Tax) rate
will rise to 41 per cent this
January — more than twice
the rate it stood at before
the first austerity Budget of
2009. Furthermore, up
until now, it was largely the
self-employed who had to
pay 4 per cent PRSI on
their savings interest.
As PAYE workers will also
have to pay 4 per cent PRSI
on their savings interest
from this January, most
savers can expect to kiss
goodbye to 45 per cent of
their savings’ interest in tax.
So if you earn €200 in
interest on your savings
next year, you'll lose €90 of
that to tax.
The hike in savings tax,
along with the paltry
deposit interest rates paid
by many banks, has made
the traditional deposit
account less attractive to
many people. Most banks
are paying less than half the
interest on savings accounts
today than they did in 2008
before austerity kicked in.
Furthermore, inflation —
which erodes the value of
savings over time — is
expected to pick up over the
next few years.
So is there any way to
dodge the higher rate of
savings tax?
If you're a cautious investor
who is reluctant to put your
savings anywhere apart
from a traditional deposit
account, you could almost
double your interest by
putting your money into a
DIRT-free savings account.
These accounts, which
are largely offered by State
Savings Ireland, allow you
to earn interest on your
savings without paying
DIRT. The savings cert from
State Savings, for example,
pays 2.11 per cent interest a
year tax free.
If you save €10,000 into a
savings cert, you'll earn
€1,100 in interest after five
years — the equivalent of
about €220 a year in
interest. Put €10,000 into
an ordinary bank account
that pays a similar interest
rate of 2.11 per cent,
however, and you'll earn
about €126 in interest a
year after paying tax —
once the higher 41 per cent
DIRT rate kicks in this
January. Add in the 4 per
cent PRSI, and the amount
of interest you get into your
hands will be about €117.
So in this case, the
investment return you get
from lodging €10,000 into
an ordinary bank deposit
account is almost half of
what you'll make if you put
it into a DIRT-free State
Savings account.
You can also earn interest
tax-free on the State
Savings' Childcare Plus and
Instalment Savings
accounts, as well as on
savings bonds. Although
you pay DIRT on the
annual interest earned on
National Solidarity Bonds,
you get a tax-free lump sum
bonus payment when your
bond matures.
The main drawback of
DIRT-free accounts is that
you must usually tie up
your money for a number of
years, according to Vincent
Digby, founder of the
financial advisers Impartial.
If you're planning to
escape the DIRT hike by
pouring your savings into a
State Savings account, do so
quickly, advised Digby.
“I suspect the Irish banks
it’s your money
Louise McBride
Join the debate at
will soon be lobbying the
Government to get the
interest rate paid on State
Savings products reduced,”
said Digby. “Otherwise, the
banks will say they're being
Your bank may offer a
DIRT-free account. Bank of
Ireland, for example, offers
a three-year special term
account where you can earn
a certain amount of interest
Another way to get around
the DIRT hike is to open an
interest-first deposit
account, where your bank
pays the interest you'll earn
on an account upfront.
This, however, is only a
short-term solution.
“In the short-term,
depositors should consider
interest-first products,
where interest is paid
within 16 days of opening
the account and where
DIRT is charged at the 2013
rate of 33 per cent — for
accounts opened in 2013,”
said Aoibheann Daly,
deposit portfolio manager
with Finance One.
Permanent TSB offers a
number of interest-first
deposit accounts, including
a one-year interest-first
account which pays 2.45 per
cent interest on lump sums
of €10,000 or more. KBC
Bank offers an interest-first
deposit account which pays
2.35 per cent interest on
lump sums of between
€3,000 and €1.5m.
If you're considering
opening an interest-first
deposit account to put off
paying 45 per cent tax on
your savings, don't leave it
too late in the year to do
so — it may take a few
weeks to get your interest
in the bag. It's worthwhile
checking with your bank
for the latest date that you
can open an interest-first
deposit account this year
before you get hit for
PRSI and the 41 per cent
DIRT rate.
The massive hike in tax on
savings interest as well as
the dismal deposit interest
rates will encourage many
people to move into
investment funds, according
to John Geraghty, chief
executive of
“Some savers are
prepared to take a greater
risk by considering some
forms of life assurance
regular savings or single
premium savings products,”
said Geraghty.
Although you could make
a higher investment return
on a well-chosen investment
fund or life assurance policy
than you would on a deposit
account, the exit tax you pay
on any profit you make
when you cash in your
investment was increased
from 36 per cent to 41 per
cent in last week's Budget.
However, you can reduce
the impact of the 41 per
cent exit tax by choosing an
investment fund or life
assurance policy where the
returns are allowed to build
up tax-free within the fund
or policy for eight years.
With these funds, you
have the benefit of
reinvesting the annual
return made on a fund or
policy for eight years
(known as gross roll-up) —
rather than paying tax on
those returns each year.
You’ll still have to pay exit
tax on your return when
you cash in your fund, but
the higher return should
ease the blow of that
tax bill.
“Other advantages of
investment funds are that
you'll get a more diversified
investment — and you have
a professional managing
your funds,” said Digby.
If you have been a
cautious investor in the
past, be careful about
jumping into risky
investment funds.
“Choose a middle-ground
investment such as an
absolute return fund as
these funds will usually be
less volatile and have a
lower risk than others,” said
Digby. Some of the funds he
recommends include the
Standard Life Global
Absolute Return Strategies
fund and Zurich's Active
Asset Allocation fund.
Gary Hanrahan,
managing director of
financial advisers Capital
Options, recommended
Investec's Wealth Options
Kick Out Bond for people
who are prepared to
take some risk with
their savings.
Buying shares directly is
now the most tax-efficient
investment as long as you
choose shares where you
expect to make your money
from capital growth rather
than dividend income,
according to Digby.
Capital growth measures
the increase in the value of
a share after you bought it.
You usually pay 33 per cent
capital gains tax on any
profit you make when
selling shares. Though
this is high, it is a lot less
than the amount of tax
you pay on any dividend
income earned on shares.
Dividend income is
usually taxed at your
marginal rate of income tax.
You must also pay the
universal social charge on
dividend income.
Furthermore, from the start
of 2014, PAYE workers will
get hit with PRSI (selfemployed people are
already paying PRSI on
dividend income). So if
you're a higher rate
taxpayer and you're earning
more than €100,000, you
could lose 55 per cent of
dividend income to tax.
The downside of
investing in shares directly
is that you're carrying a
greater risk than you are
when investing your money
in a traditional deposit
account. “Your tax affairs
will also be more difficult to
organise,” said Digby.
Rory Gillen, founder of
GillenMarkets, believes that
equities offer the best value
when it comes to
“Coca Cola's growth rate
may be slower now than in
the distant past, but a 3.3
per cent starting yield plus
even 4 to 5 per cent annual
growth in that yield offers
investors the prospect of an
annual return of 7 to 8 per
cent. This beats the pants
off bank deposits and
longer-dated government
bonds. A German 10-year
bond, for example, yields
only 1.9 per cent and offers
no growth,” said Gillen.
If you invest too heavily
in one particular share, you
risk losing everything if that
share performs badly. It's
important therefore to
choose your shares
carefully. You need to be
careful not to have all of
your eggs in the one basket.
Before you take the leap
from a deposit account into
shares or an investment
fund or life assurance
policy, get independent
financial advice.
INTEREST is best
known for its
sharing of images —
especially images of
cakes. However, it is already
being used as a great tool to
discover and collect articles
in the form of an online
scrapbook, with more than
five million articles being
pinned daily.
Pinterest has recently
social media
Paul O’Mahony
Join in at
decided to expand on this
use, creating a new look for
article pins which allows
them to have more
information — including
the headline, author, story
description and link all on
the pin. This allows articles
to be pinned, saved and
organised more efficiently.
These latest
developments make the
platform more useful to
business users as well as to
those who use the site for
personal reasons.
The new feature also
helps people to take a ‘pin
now, read later' approach,
as they can save interesting
articles which they have
come across online and
choose to read them at a
later date when it is more
convenient for them. This
allows users to create their
own reading room on
This new feature can be
particularly useful for
publishers who are trying to
reach a target audience
composed mainly of
women, as women are the
most common users of the
site, making up around 72
per cent of total users.
Paul O'Mahony is cofounder
of Social Media Frontiers.
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