Dominic Coyleanswers readers' financial questions.
Q: I JUST want to express my concern at the misleading information in last Friday's Business This Week in relation to regular savings products.
AIB features at the top of your list with the highest rate. However, you do not qualify your information with the very relevant fact that this rate is merely a loss leader and is offered for only a limited number of months in order to get you to sign up.
I took out one of those products at 7 per cent but was shocked to see that AIB had reset my rate to 4.04 per cent after six months or so, as per the small print in the terms and conditions. Meanwhile, it continued to offer 7.15 per cent to new entrants.
I feel this should be highlighted, as you highlight conditions with most of the other offerings in the marketplace.
Mr P.E., Dublin
A Competition between financial institutions for your savings is quite intense at the moment as they struggle to borrow money on reasonable terms from other sources. That is why all the main Irish banks have introduced updated regular saver accounts in the past year or so - many with attractive headline interest rates compared to the current level of inflation.
However, as you point out, some of these headline rates are not everything they seem to be and often last just a few months before being reduced to a significantly lower figure.
Given the plethora of new options, the Irish Financial Services Regulatory Authority decided to publish its first comparison survey of such accounts - the table we produced in the newspaper last week.
There was a footnote in the main table referring to Halifax's introductory/temporary offer, but not to those of AIB and Irish Nationwide. Following your query, the regulator tells me that it has since added footnotes regarding AIB and Irish Nationwide's introductory offers to the main table.
To be fair to the regulator, the information was available on a link from the main table at www.itsyourmoney.ie
Q I invested the maximum amount in a Bank of Ireland (BoI) equity-based SSIA, which matured in April 2007. I availed of a BoI offer at that time to continue saving the same amount for a further three years and the bank would match the Government contribution for six months.
The offer also allowed you to withdraw a maximum of 50 per cent of the value of the SSIA on maturity, which I did.
However, since May 2007, the value of this equity investment has taken a severe hammering in terms of its value. When I spoke to a Bank of Ireland Life official early this year regarding the sense in continuing making a monthly contribution, she suggested that, as the market was weaker, my contributions were now purchasing more units for my fund and she advised me to continue making contributions.
Would you recommend continuing making these contributions or diverting these funds elsewhere?
Mr E.M., Offaly
A When your Special Savings Incentive Account (SSIA) matured, the performance of the equity-based investment had been encouraging, which led many people to "roll over" their savings into a similar product, as you did.
The fact that you could withdraw 50 per cent of the funds and that Bank of Ireland offered to match contributions for six months on a €1-for-€4 basis were added attractions.
However, as you have discovered, the fund was soon in the red as share prices fell. In fact, stock markets have been falling since February 2007.
You were quite correct to seek advice on the wisdom of continuing to make contributions to this investment. Where you made a mistake was to ask Bank of Ireland. It's their product and they are not therefore in a position to give you an independent view on its prospects. I would suggest you approach an independent financial adviser on this and any other investments you may have.
Q I am completely confused by the figure of €635 Dirt tax being payable on the interest on a deposit of €20,000.
I have approximately €36,000 (quite a legitimate transaction - my retirement gratuity) on deposit with Permanent TSB and last year received interest of €1,074.31. The Dirt tax deducted was €214.80. How would €20,000 on deposit at current rates give rise to Dirt tax of €635? Am I dealing with the wrong banks ?
Anything you can do to unmuddle my mind will be appreciated.
Ms A.S., Dublin
A Your mind is perfectly unmuddled. As you have quite correctly pointed out, if the Revenue was using accounts yielding €635 per annum in Deposit Interest Retention Tax (Dirt), it would either be dealing with deposits considerably in excess of €20,000, or some banks were offering interest rates back in 2005 and 2006 that we could only dream of.
Clearly, given Dirt is deducted at 20 per cent of interest earned, €635 in Dirt would imply annual interest income of €3,175. On a deposit of €20,000, that would imply an interest rate of close to 16 per cent. And that didn't happen.
The €635 Dirt figure was reported at the time the Revenue announced the clampdown on "hot money" - untaxed income - in deposit accounts and was not contested at the time.
Following your inquiry, the Revenue tells me the €635 figure relates to the entire interest income in a given year and not just to Dirt.
That implies accounts offering a more reasonable interest rate of just over 3 per cent back in 2005 and 2006.
More to the point, with an investment of more than €20,000, it is quite likely that the Revenue will eventually get around to looking at your account, although it is unlikely to be a priority. Initially at least, it is targeting large-scale depositors - those with unexplained deposits of more than €100,000.
It is important to note that, even when the Revenue does come calling, it is interested only in untaxed income on deposit with Irish banks. Your deposit is legitimate and clearly traceable, so I would not worry about it.
Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2 or by e-mail to dcoyle@irish-times.ie This column is a reader service and is not intended to replace professional advice.
