# State Savings Product - cut again - 2/6/2013



## monagt (2 Jun 2013)

Bank lobbying has worked - interest rate cuts of up to 1% on State saving schemes announced today.

NTMA announces changes to State Savings products from today - new issues of fixed rate products and changes to variable rate products


http://www.ntma.ie/news/ntma-announces-new-issues-of-state-savings-products-and-changes-to-interest-rates/


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## 1dave123 (2 Jun 2013)

http://www.ntma.ie/news/ntma-announ...vings-products-and-changes-to-interest-rates/


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## theresa1 (2 Jun 2013)

Glad I just stuck €3,000 into a 10 year bond the other day - was going to get a three year bond next, but with rates dropping I might stick more in to a 10 year bond. Is this the end of rate cuts for now or should we expect another around December - time will tell.


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## Lightning (2 Jun 2013)

More from Journal.ie here.

Cut was speculated about on AAM, so I hope some posters got in before the cut.

Now for me to calculate the new 'grossed up AER' rates.


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## The Ghoul (2 Jun 2013)

Some change from 6 months ago which is now 2 issues ago. Eg if you invested 120,000 in the 3 year bond on 2/12/12 you'd have gotten 12,000 after 3 years. Now you'd get 4,800 

Two rate cuts in 6 months, I have to say I'm not that surprised given the reported lobbying by the IBF and the interest rate environment. Here's what I wrote on 17/12/12 after the previous cut.


> One other thing to say is that the new rates are still fairly good and just because the 17th cert issue lasted 5 years doesn't mean that the 18th will last that long. There could be another cut. In 1998, there was only 6 months between savings cert issues.


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## Lightning (2 Jun 2013)

The cuts are pretty savage. 

There is very little incentive to lock your money away for long periods with the NTMA any more at these new super low rates.


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## Clohass (2 Jun 2013)

I also feel these rates will make it difficult to retain existing Investments as they mature, as well as attracting new money. Given the need to tie up your money at a time of huge uncertainty re current and future interest rates and inflation. It almost seems that the NTMA feel people will continue to leave money as it matures and deposit new money irrespective of the rates. Interesting to see how much money will be invested going forward.


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## Protocol (2 Jun 2013)

The 3yr Savings Bond rate has gone from 10% to 7% to 4% in maybe a year, as described above.

That's a big cut with the new AER at 1.32%, albeit with no DIRT.  The grossed-up rate is approx 2%.

Some comments:

Assuming that State Savings is a large player, and that its rates are important for competition, this should lead to less competitive pressure on bank deposits, and so lower bank deposit rates???

The best 1yr deposit rates at the moment are 2.60-2.75 - I presume these will fall towards 2%??

Lower bank deposit rates should help restore bank lending margins.

Might this mean less upward pressure on SVR??


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## Lightning (2 Jun 2013)

Protocol said:


> Assuming that State Savings is a large player, and that its rates are important for competition, this should lead to less competitive pressure on bank deposits, and so lower bank deposit rates???



The banks had long since stopped trying to compete with the NTMA in the 3 year+ bracket and the NTMA are not competitive in the instant access and notice account market. Hence, I would think there will be some moderate impacts but deposit rates were on a downward trajectory regardless.



Protocol said:


> The best 1yr deposit rates at the moment are 2.60-2.75 - I presume these will fall towards 2%??



Difficult to say what the line in the sand number will be when the dust settles and rates stop dropping. Irish banks all have very high loans to deposits ratios, that are being addressed, that will encourage higher rates here than elsewhere in the EU in the short to medium term.

Will rates hit Japanese deposit rate levels of circa 0.50% for 1 year fixed? or US levels of up to 1% for 1 year fixed? or UK levels of circa 1.80% for 1 year fixed? Different markets, but they give an indication of how low deposit rates can go. 

I would guess that there will be a gradual decline here, in deposit rates, over the coming months/years, to around 1% above ECB base rate for 1 year fixed.


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## DirectDevil (3 Jun 2013)

Is this a crude method to get people spending on the basis that it will be not worth saving?  Most low risk savers are unlikely to send funds outside the country and NTMA will know that ! This could yet get worse for savers. At least we don't have negative interest interest rates.


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## theresa1 (3 Jun 2013)

Sinead Ryan - The Herald was on RTE Radio 1 just after 8am and Newstalk just after 9am aprox. this morning.

On the RTE interview she should have pointed out that An Post are only agents of the NTMA and possibly worse but on the Newstalk interview and I stand to be corrected she gave the impression that all State Savings products are actually available to apply for online.

You can get Prize Bonds online - that's all. Also and I think it was on the Newstalk interview the impression all products Dirt free which of course is not the case.


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## theresa1 (3 Jun 2013)

DirectDevil said:


> Is this a crude method to get people spending on the basis that it will be not worth saving?  Most low risk savers are unlikely to send funds outside the country and NTMA will know that ! This could yet get worse for savers. At least we don't have negative interest interest rates.




The banks told the Government to jump and they asked - how high?

The banks want the money going into them and not going to State Savings products.


But yes the Government want people to spend and as Sinead Ryan pointed out but without any incentive.


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## Brendan Burgess (3 Jun 2013)

theresa1 said:


> Sinead Ryan - The Herald was on RTE Radio 1 ...
> 
> she gave the impression that all State Savings products are actually available to apply for online.
> 
> ...Newstalk interview the impression all products Dirt free which of course is not the case.



Wow!  I have not stayed up to date with the details of savings products and their taxation. But when I heard Sinéad on the radio this morning I thought that she was very knowledgeable and very articulate. She certainly sounded as is she knew what she was talking about and I was surprised at her detailed knowledge.


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## camlin90 (3 Jun 2013)

For me this just means any maturing State Savings funds will be redirected to paying down a variable rate mortgage as there's no longer any rationale for buying savings products. So it's not going to help the NTMA, consumer spending or the banks' profit margins. You'd imagine the rational consumer would react this way rather than going on a spending splurge just because interest rates have been cut.

This certainly makes life very difficult for anyone near retirement/depending on interest as an income.

In Germany I believe there's a phenomenon where reduced interest rates actually depress consumer spending as people realise their net income has fallen? I guess we're a bit off that yet though!


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## theresa1 (4 Jun 2013)

The Ghoul - another excellent post. I must say it was a nice surprise getting my statement this morning and realising how lucky I was getting a large chunk of money into 5.5 Savings Certificate last December and a 4 year bond last November.

Also managed nearly €10,000 into 10 year bonds Issue 2 - not bad as we are now on Issue 3.


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## croker (4 Jun 2013)

Variable rate products - the 30day deposit account is now 0.5%.
When I opened my account late last year i thought it was around 3%. Is that right, that it dropped so much in <9 months?


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## theresa1 (4 Jun 2013)

Yes was 3% and then on 16 December 2012 it dropped to 1% and recently on 2 June 2013 it dropped to 0.50%.


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## sebadoh (6 Jun 2013)

Brutal interest cuts over a period of 6 months. Looking at the best buys there really now is nowhere to get a decent return on your savings. Seems like the Government is trying to force savers to spend


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## Silvera (6 Jun 2013)

Ok ...maths aint my strong point 

.....so just to be sure.....

For example, €10k via 3 year State Saving Bond @ 4% = €1440 in interest? Correct?

What does 1.32% AER equate to?


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## Protocol (6 Jun 2013)

It's 4% over three years, so the total interest is 400 euro.

10,000 principal.

1% = 100
4% = 400


That's equivalent to 1.32% per annum, compounding.


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## Lightning (6 Jun 2013)

sebadoh said:


> Looking at the best buys there really now is nowhere to get a decent return on your savings.



Yeah, although we are in a low inflation environment so it is, just about, still possible to get a real return. 

Anyway, a small return from your savings is better than no return at all.


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## Silvera (7 Jun 2013)

Protocol said:


> It's 4% over three years, so the total interest is 400 euro.
> 
> 10,000 principal.
> 
> ...



Ah, I thought it was 4% per annum


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## Palerider (7 Jun 2013)

That is a poor return for lending your money to an insolvent country, I have substantial prize bonds which will be cashed asap, need to find another home for those funds, I also have funds maturing in July that I had planned for 3 year State Savings, working on a Plan that will see all funds removed from deposits and invested in something that will work just a little harder for me.


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## dub_nerd (8 Jun 2013)

Palerider said:


> That is a poor return for lending your money to an insolvent country, I have substantial prize bonds which will be cashed asap, need to find another home for those funds, I also have funds maturing in July that I had planned for 3 year State Savings, working on a Plan that will see all funds removed from deposits and invested in something that will work just a little harder for me.


 
What sort of lines are you thinking along? I have State Savings and Irish bank deposits, but don't wish to increase my holding of either any further. (I'm not asking for investment advice, just wondering what other people would consider a reasonable investment. Right now, the yield on direct property investing is a poor return for a lot of work, and shares are in serious danger whenever the US Fed pulls the plug on Q.E.)


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## Palerider (8 Jun 2013)

Well I like the $/€ exchange and will be looking to buy more foreclosed or short sale opportunities in the U.S., these are harder to get in the larger Cities than you could possibly imagine ( Not Detroit or anywhere in Florida ), yields are good, properties are in good locations, are let unfurnished and are easily managed with some good local help, entry point about $70k (€53K ).
Parts of the U.K. are also worth looking at, I would not have previously looked there but I do need to protect my yields.


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