Starting from scratch as a regular saver? There are some good offers on the market now, says John Hearne
WITH interest rates of up to 4% available from some financial institutions, good value is creeping back into the regular savings market.
If you have your eye on a car or you're trying to build up a deposit for a house or a trip round the world, take the time to check out the market and find the account that's best for you.
Simon Moynihan of price comparison site Bonkers.ie said that the banks generally regard regular savings accounts as loss leaders.
"The idea is to get some-one into the savings habit. That's how they work. They're always limited in the amount you can put in and the amount that you can have as a total deposit."
We're not talking here about lump sums. If you have €20,000 and are looking for a good home for it, you need to check out lump sum deposit accounts. This is for regular savers who are starting from scratch or close to it.
Despite the good value that's out there at the moment, Irish people aren't the best at taking advantage of it. For some reason, we just don't change banks.
The energy market sees something like 1,000 switches every day. They rack up more switches in a month than the entire banking sector sees in the year.
Just last week, the Central Bank announced that 11,000 people used their switcher code in the second half of last year, which amounts to less than 0.2% of the accounts in the system.
The implication is that we think they're all the same.
They're not. There's huge variation in the regular savings market, with some providers offering little or no return and some offering very decent value.
The trouble is that regular savings accounts, like so many of the products offered by the financial institutions, are so full of terms and conditions that comparing like with like isn't easy.
Take the number one account on the list. The Nationwide UK (Ireland) Regular Saver Account.
The 4% AER (annual equivalent rate) looks like fantastic value, and it is up to a point. But the terms and conditions strip away a lot of that value.
For one thing, the term of the account is just 15 months. Also, the second the balance exceeds €15,265, the rate falls to a paltry 1.05% AER.
The account that pays the next best rate, the KBC Regular Saver, is actually a little more attractive.
"It's paying 3.5% and the maximum balance is €50,000," said Simon Moynihan, "that's why I like it. You can keep plugging away to a max of €50,000 so it's good for almost anything. It's good for deposit saving, it's good for car saving and it's offering a really decent rate of interest." On the downside, you do have to commit to paying set amounts per month, but you can take up to two payment breaks each calendar year for when other commitments make regular saving difficult.
The other thing to bear in mind when you're interest rate shopping is that in most circumstances, you have to factor in DIRT (deposit interest retention tax).
That currently stands at 41%, which means that every rate you look at is automatically reduced by that much; 4% becomes 2.36%; 2.25% becomes 1.33% etc.
While State savings accounts clock up interest free of DIRT, the rates they offer are comparatively low and there are restrictions on access to your savings.
Don't dive straight into savings without thinking about your overall financial position first, particularly if you're thinking of going fora savings account that commits you to a set amount every month.
Work out a budget and try to come up with a realistic figure to set aside. And if something comes along to derail the plan, just start over again.
Note too that if you have outstanding loans, paying money into a savings account may be the wrong thing to do.
The National Consumer Agency offers this powerful example: Suppose you have a €10,000 loan over four years, at an interest rate of10.1%. If you paid an extra€100 a month from the start of the sixth month, you would save €583 in interest and clear your loan 13months quicker.
By comparison, if you put that €100 per month on deposit, you would earn just€26 over a 12-month period, based on an AER of 4%.
Because credit card and consumer finance debt tends to be expensive, you're usually better to pay off the loan instead of saving the money at a lower rate of interest.
When looking for the right product for you, check and see if the account gives you the flexibility to top up with an additional payment if things go better than expected and you have more left than you had hoped at the end of the month.
Watch access restrictions too. Some accounts will only allow you to withdraw at agreed times. The EBS Family Savings Account, for example, allows a maximum of two withdrawals per year.
And in this era of reintroduced charges, take a look at the fine print and make sure any bank charges are kept to an absolute minimum.
For more detail on the products that are out there, check out bonkers.ie or the financial product comparison section of the National Consumer Agency site, consumerhelp.ie Best value regular savings accounts. The figures below relate to a monthly saving of €100. Additional terms and conditions apply. Check individual financial institutions for greater detail.