Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.

Special Savings Scheme

A recent article in The Irish Times equated the 25 per cent Government bonus to an annual interest rate of 8.9 per cent. Would you please advise me as to how this is calculated?

Mr T.G., e-mail

Essentially, although the Government is granting you a 25 per cent boost, the effect of this on the full amount saved over the full term is much reduced because not all the money is there all the time. As a ready reckoner, if you put away £100 (#127) a month, you would save £6,000 over the term of the scheme. However, the average saving over the five-year term would be £3,000 because of the monthly nature of the scheme. The Government is giving you £1,500 on the £6,000 saved, but as a return on the average saving over the five-year term of £3,000, the £1,500 is 50 per cent. That is over the five years, giving you an annual return of 10 per cent.

The actuarial formula is much more complicated but it does yield an annual return of 8.9 per cent on your savings under this scheme. Of course, that annual return is simply on the Government bonus. In addition, there is the interest/return on your investment, depending on where you have it and how it performs. On the down side, you need to take account of the tax on this growth - which will be levied at the standard rate plus 3 per cent at the time of encashment. You also need to look at the impact of charges on equity-based products.

I am toying with the idea of investing £50 (#63.50) a month in my name in the new special savings incentive scheme. I have only a total income derived from my compulsory retirement pension. I also have 2,300 units in AIB AIIP Managed Growth Funds, which stood at £272 recently, and propose gradually to cash these to pay for the other investment.

What would I have to pay in total over the five-year term and what would I receive at the end of the period?

What would be the position if either I or my wife died before the end date - a not unlikely scenario as we are both 81 years of age?

Would I have to pay the 23 per cent tax on the investment?

I would appreciate some advice as the AIIP Managed Fund has not advanced significantly recently and the other may be a more lucrative investment proposition.

Mr J.W., Dublin

Saving £50 a month would mean a total commitment of £3,000 over the five-year term. At the end of the period, you would have this £3,000, plus £750 from the Government, plus whatever interest/ investment return accrued on the savings depending on the type of account in which you invest.

If you die before the end of the savings term, your contributions together with the Government bonus passes to your estate untaxed. Any interest or investment return would be taxed at the standard rate plus 3 per cent, currently a total of 23 per cent. Your wife's death would not impact on your savings, as you cannot have joint accounts. As I have outlined above, you will have to pay tax - currently 23 per cent - on the return on the investment but not on the investment itself. Many people with investments that are performing worse than they would like, together with those who have savings in more deposit-type savings, are looking at this new scheme to maximise their return on their money. As the answer above points out, the effect of the Government money alone is a return of almost 9 per cent on your capital - not bad when measured against poorly performing products elsewhere.

I am going to take out a Government savings scheme. I think the fact that I am getting 25 per cent from the Government is great, therefore I am going to take out a policy that invests the money in tech shares. Tech shares are quite low at the moment - Intel, Microsoft, etc. - but they will hopefully go up. Is there a policy that invests the money in tech shares and guarantees your capital?

Mr O.G., e-mail

There is a plethora of fund options from various managers seeking to attract your savings. They are addressed in detail above and on the front page of this section - Hibernian alone has 21 options.

These are broadly divided into low, medium and high risk, and the charge structure and any guarantees on capital are adjusted accordingly.

You are right that technology stocks are low at the moment by comparison to the recent past. However, it is worth pointing out that they are not as poorly valued as you would think when compared with more traditional measures of company worth. These stocks are also going through an upheaval at the moment and it would be a brave person who decided to place all their bets on this volatile sector.

I am not aware of any fund manager offering a product that invests purely in technology stocks and offers a guarantee to return all your capital to you at the end of the term regardless of performance. People should remember that, while the Government is giving a handsome incentive to save, investors will still be investing four times that amount from their own resources. Think carefully about your suggested strategy.