# Sunday Business Post comments on savings interest rates



## The Ghoul (14 Aug 2011)

Today's SBP Markets section page 3 article by Jon lhle. Some quotes:

"after tax deposit rates on the most competitive accounts are returning just above 1 percent"

"with inflation at 2 per cent to 2.5 per cent and low interest rates you're looking at real negative return"

"paltry returns on savings"

"what are the attractions of holding cash? There are none"

Am I missing something here? As per CiaranT's thread on fixed term deposits, after tax rates seem considerably higher than 1%.

Ulster Bank, PTSB and AIB are giving between 3.85% and 4.10% gross for 1 year fixed term. 

BOI are giving 4.40% gross for a 2 year fixed term. 

State Savings certs are giving the equivalent of 4.83% gross for a 5.5 year fixed term 

And as per my earlier thread:
*Using An Post (NTMA) bonds and certs for regular savings? *
You can buy as many as you want as often as you want up to a max of 120k with the minimum amount being 50 euro

And if I remember correctly, approx 1 month ago, the SBP described the current stuation/interest rates as a "bonanza" for savers yet today I'm reading the quotes above.

?


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## oldnick (15 Aug 2011)

You are right. He is wrong. And he is even more wrong if he believes what he writes elsewhere -that ECB will reduce interest rates. 
So, locking into 4+%  even at 27% Dirt means ca. 3% nett. 
Yes, maybe this is "paltry" but maybe a bit safer than shares or bricks. 
It's certainly more than I'm paying on my tracker,and if ECB do reduce interest rates, as he reports, then it will be even more than I'm paying on my tracker.

But I confess I also  have a slight niggle  that I'm missing something....


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## Lightning (15 Aug 2011)

I have generally had respect for Jon lhle but several of his articles in last weekends SBP had factual inaccuracies and misleading information. This was one of them. Sloppy journalism.


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## marksa (15 Aug 2011)

I suspect the writer is getting slightly mixed up between real interest rates (intererest rate net of inflation) and nominal interest rates (interest rate). So for example. 3% rate of return on a call deposit account, less 2.5% inflation = real interest rate of 0.50%. 

Then the references above to up to 4% for 1 year rates... 4% -2.50% = 1.50%. Fair enough, but this does not take into account future erosion of real interest rate *if* the inflation rate increases over the next year to e.g. 4%. The very fact that the 1 year rate is higher at 4% than the call rate at 3% is a reflection of forward expected direction of interest rates fueled by market factors including inflation and a risk premium.

So to be fair to John, he was probably trying to write an insightful article rather than an inciteful one!


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## the-madman (16 Aug 2011)

@marksa: if you take the 27% DIRT off your calc then you get closer to the right values. 4% -Dirt returns just below 3% - 2,5 % inflation (which is a bit blonde and probably will be much higher at the end of this year) leaves almost no benefit to the savings. But it at leasts covers the inflation.


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## marksa (17 Aug 2011)

the-madman said:


> @marksa: if you take the 27% DIRT off your calc then you get closer to the right values. 4% -Dirt returns just below 3% - 2,5 % inflation (which is a bit blonde and probably will be much higher at the end of this year) leaves almost no benefit to the savings. But it at leasts covers the inflation.


 
cheers - good spot - maybe the SBP will write a follow-up story...


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