Belfast Telegraph

Economy Watch: The view from Dublin

By Charlie Weston

Efforts to punish the prudent and force them to spend their savings are not working. The latest figures from the Central Bank show that the sum of household savings is now within spitting distance of €93bn (£68bn). This is the figure for April, and is up a mighty €733m (£536m) on the total for the previous month.

And that €93bn does not take account of savings stashed in credit unions. Add in another €10.7bn (£8bn) in savings in credit unions that are members of the league. So much for the efforts of the present and previous governments to tax savers in a foolish attempt to force them to take their money out of bank deposit accounts and credit union savings.

Ordinary people have not been persuaded to part with their savings, and for good reason. Most people are precautionary savers - people who put aside money because the future is uncertain.

This is certainly a wise course of action given the financial trauma that has been visited on those who feel they have to pay for everything, including ponying up for the rescue of the economy and funding the follies of bankers.

The tax on savings is a hefty 41%, known as Dirt (deposit interest retention tax). This tax has gone up gradually from 2008 when it was 20%. And people in the pay as you earn (PAYE) net are now required to make a tax return and shell out for PRSI (pay related social insurance) on any interest they earn on their savings.

This takes the total demanded from the state on any interest you get on your savings to a not inconsiderable 45%. So almost half of anything earned is taxed. It needs to be borne in mind that the people who are saving are doing so to avoid having to rely on the state to sort them out.

But the state is attempting to undermine their efforts to be sagacious. It is not as if there is much being earned in interest on savings accounts. The best rate you can get at the moment, outside the state saving schemes, is from RaboDirect at 1.70% for putting your money away for at least 90 days.

The state's savings certs have a massive advantage in that there is no tax due on the interest. Certs pay an annualised interest rate of 2.26%, but the big downside is that you have to put your money aside for 10 years. Right now, the savings certs and savings bonds on offer from An Post look attractive.

For the short-term savers, the options are limited. Savers could do with a break from the government.

Belfast Telegraph


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