I’m just reading about these state savings and prize bonds - lot of talk of impending negative interest rates -have 60 k to “invest” for 3 years - NO RISK - what would be best now ? No access required
New State Savings Rates
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NoRegretsCoyote
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Greece defaulted on tens of billions of its debt to institutional investors in 2012 but did not touch retail depositors.
State savings are not even low risk, they are ultra-low risk. There is literally no product for an Irish retail investor with lower risk.
Oh I thought the state savings was government backed to 100 k ? As a consequence fully secure and safe - thanks a lot
State savings are fully guaranteed... by the state. So when posters say they are "low but not zero" risk, they mean that you still have a country risk - that the country goes bust and defaults.
It's still a higher level of guarantee than the bank deposit guarantee you refer to
NoRegretsCoyote
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Ireland has about €226bn of debt. This includes €19bn of state savings held personally by Irish people in Ireland, and €142bn of government bonds held by institutional investors all over the world.
State savings are de facto senior to government bonds. I am pretty knowledgeable on this topic, and you would need a sovereign default on a spectacular scale (as in wiping out a large majority of the €142bn held by institutional investors) before a government would touch state savings.
Remember that there are hundreds of thousands of state savings holders, all of whom can vote. Confiscating even 10% of their €19bn would cause orders of magnitude more difficulty than just squeezing €2bn more out of a default on institutional investors.
It's not zero risk (nothing is) but it's as close as you can get.
Thank you for taking the time to reply
Duke of Marmalade
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That has always been my view and it is good to see it confirmed by someone who seems closer to the practical realities than me.
I recall during the financial crisis when Irish bond rates hit double figures, Jill Kirby berating the returns on State Savings as not reflecting value for default risk. And the view that State Savings carry the same risk as government bonds is almost official orthodoxy in these parts.
I'd agree that going after state savings would be the last of last resorts. If a few billion was all the government wanted from domestic resources it would be much more likely that a new pension levy would be introduced. The government tested the waters on this in 2011-2015 and raised €2bn over 5 years and scarcely a whimper was heard. It set a dreadful precedent. There must be a very real prospect of this being introduced after the next change of government in any event.
NoRegretsCoyote
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The ten-year national solidarity bond offered in 2010 gave an absolutely stonking gross return of 50% over ten years.
I still regret not buying one.
I still regret not buying one.
Many have just had a happy covid Xmas and people wonder why there's so much cash out there with plenty more where that came from too.
You and me both. Absolutely eye watering compared to what's on offer today. They had the added advantage that the return for a mid-late term "early" encashment was also pretty respectable so you weren't absolutely locked in for the term. I have a few of the later issue 10 year ones which pay 25% (No DIRT so Net).
I was lucky, got in at 50%, 45%, & 40% and last ones we did were 25%, and have been maxing pensions as well. It was not only interest rates that attracted me, but no charges, no risk, and quick access to cash, if we needed it, which we didn't. We were also looking ahead, and wanted a steady steam of certain, and guaranteed cash lump sums, from mid fifties onwards. They start maturing in about 2 years.
Interesting. I have never seen that stated before.
Yet bonds offer lower yields.
In fairness that is a lot more than luck. Good planning, good research and good timing. Take a bow.
NoRegretsCoyote
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They haven't always though.
Duke of Marmalade
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Well, I have been arguing that ever since the crisis when I had to rebuff arguments by the likes of Jill Kirby and senior folk in this very parish that they ranked pari passu.
The mistake that was being made was in comparing a sovereign state to a corporation. In a corporation there are rigid rules on subordination and the de jure position is the de facto position as well. Thus our banks simply could not have defaulted on bondholders but kept depositors whole.
This is not true for a sovereign state or even if it was true they can always change the law; after all I presume it would need a legal enactment to default in the first place.
The counter argument that I faced was that the German bondholders, for example, would never tolerate being treated in a different way from State Savings, and could force pari passu. That is a judgement call which I strongly reject.
NoRegretsCoyote
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I heard this (anecdotally) too that senior bonds and deposits ranked pari passu under Irish law.
People do this all the time, by talking about unfunded state pension liabilities and the like. It's nonsense. Like saying that the Naas Road resurfacing in 2048 is unfunded.
Don't forget the state has the almost infinite power to tax its future citizens to pay its obligations.
Ireland actually came very close to sovereign default exactly ten years ago. But Johnny and Mary's Prize Bonds were never going to be touched.
NoRegretsCoyote
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Another reason why the state will never default on retail depositors.
Often people take half a century to look for their money back!
Often people take half a century to look for their money back!