SAVERS have suffered a new blow after the interest paid on state savings schemes was cut again – Charlie Weston
Traditionally, state savings schemes were regarded as a good- value attractive option for savers, as they paid high interest, with no tax on many of them.
But interest on six of the state savings products has fallen - the fourth cut in less than two years. And it comes as banks have repeatedly cut the rates they will pay savers.
In the summer, the European Central Bank (ECB) slashed its main lending rate to just 0.05pc, after it had made more than a dozen cuts since 2008.
Banks have used the fact that the ECB rate is almost zero as an excuse for a new round of reductions in the rates they pay their savers.
Some banks are paying as little as 0.01pc. This means a before-tax return of just 10 cents for lodging €1,000 for a year.
Households have around €92bn in savings in banks and almost €19bn in the state savings schemes. They are sold by An Post, but issued by the National Treasury Management Agency (NTMA).
Bankers have admitted in the past that they lobbied the Government to reduce the interest paid on the savings plans.
Deposit Interest Retention Tax (DIRT) went up to 41pc in the last Budget. And from last January, savers who are in the PAYE system have had to pay an extra tax on interest on savings.
The 4pc Pay-Related Social Insurance (PRSI) applies to interest earned on savings in a bank, though not to the state savings schemes.
Now the interest rate paid on six of the eight state savings products has been cut, with most being reduced by 0.5pc. The reductions mean that someone investing €10,000 in the state savings bonds will now get a return of just €83 a year, down from €132 for those who bought savings bonds issued before today.
The interest being paid on the state savings bonds is now four times lower than it was less than two years ago. The prize fund pot for Prize Bonds has also been decreased. But apart from Prize Bonds, those with existing state savings will not be affected.
Simon Moynihan, of price comparison site Bonkers.ie, said the incentive for savers to put money aside was disappearing.
Every month, banks are advertising new reductions in savings rates, he said. AIB, Ulster Bank and Permanent TSB have all cut their interest rates in the past few days.
"There is no incentive for people to save in Ireland. I am surprised so many people are still saving," he said, adding that DIRT tax had doubled since 2008 and banks were no longer rewarding those who put money into savings accounts.
An NTMA spokesman said interest rates have "fallen across the retail savings market" and it has to ensure the rates "paid on state savings products are competitive".