national solidarity bond

[majee]

I've a fairly basic query on this scheme. I'd be prepared to stick about 25k into this scheme. I understand that I would get an annual 1% interest rate return subject to DIRT each year for 10 years (= 10%). However at the end of year 10 it says '40% tax free bonus at the end of year 10'. What exactly does this mean? Could someone give me a mathematical example? I don't see any discussion on the scheme anywhere. Has anyone participated? Can anyone see any obvious drawbacks to this?

majee

 

[Lightning]

Will you not need access to the money for 10 years? The main drawback is the extreme length of the term deposit.

Have you read the term deposit best buy thread?

http://www.statesavings.ie/products/Pages/NationalSolidarityBond.aspx (State Savings: National Solidarity Bond)
10 Years 3.96% (A normal deposit account would need to be paying 5.28% to match this rate because this product is not fully subject to DIRT)
Note 1: €500 minimum, €250,000 maximum (€500,000 for joint account)
Note 2: The bonus on this account is not subject to DIRT, the normal interest is subject to DIRT.
Note 3: Savers will receive the interest in the form of 10 annual payments of 1 per cent and a 'bonus' at the end of the 10 year term. If a saver cashes in their term deposit before the end of the fifth year they will not qualify for the 'bonus'.
Note 4: NB: As the interest penalties are significant on this account, you should only consider this product if you are certain that you will not need access to your money at any stage over the next 10 years. 10 year term deposits are not suitable for most savers. You should also be aware that you take on considerable upward interest rate risk by fixing for 10 years.
Deposit protection: Irish government guarantees all State Savings deposits.

 

[twofor1]

However at the end of year 10 it says '40% tax free bonus at the end of year 10'. What exactly does this mean? Could someone give me a mathematical example?majee

· Gross return of 50% (AER1 4.14%) over 10 years consisting of
o 10 annual payments of 1% p.a. = 10%
[subject to Deposit Interest Retention Tax (DIRT2)]
o 40% tax free bonus at the end of year 10
· Net return of 47.5% (AER 3.96%) after DIRT2


http://www.anpost.ie/AnPost/GeneralTemplates/ProductsAndServices.aspx?NRMODE=Published&NRNODEGUID=%7bC5BABFE0-6E0D-4257-93C7-D87A0FB56B4C%7d&NRORIGINALURL=%2fAnPost%2fMainContent%2fPersonal%2bCustomers%2fMoney%2bMatters%2fNational%2bSolidarity%2bBond%2fFAQs%2f&NRCACHEHINT=Guest#top

My understanding is you get a gross return of 50% (10% interest + 40% bonus) but you pay DIRT on the 10% interest, which leaves you with 7.5% interest + your 40% tax free bonus leaves you with 47.5% net.

€25,000 left for 10 years would be worth €36,875.00 (assuming Dirt stays at the current 25%)