NTMA increases rates for State Savings products

Freelance said:
Where exactly did NTMA present the total return as an interest rate ?

Anywhere I look they use the terms “total return“ and “AER” only, never interest rate. These terms are clear enough.
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  • Rates on new fixed term products to increase. The total tax free return on the new fixed rate products are as follows:
    • 3-Year Savings Bond from 1.0% to 4.0%
    • 5-Year Savings Certificate from 5.0% to 9.0%
    • 6-Year Instalment Savings from 5.5% to 10%
    • 10-Year National Solidarity Bond from 16% to 22%
 
Hi,

In case of early withdrawal of funds invested in fixed-term products, what are the main differences in terms of outcome between NTMA & AIB?
Could anybody explain this, possibly with example/s?
I am trying to decide between the 3-Year NTMA Bond at 1.32% and the 2-Year AIB Deposit at 3.00%.
I understand and I am fine with the differences in terms of return on maturity.
What I would like to understand better are the consequence of early withdrawal in terms of limitations/penalties/interest loss.
Thanks in advance.
 
noelÓm said:
I am not impressed by the presentation of total returns as the 'interest rate', with AER as the secondary consideration. Since when are we comparing products based on total return %? It is misleading for an uninformed consumer IMO.
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And in the Irish Times today, Colin Gleeson refers to the rate in an equally less obvious way to less informed customers. Alhough the latter part of the sentence clarifies "over that period", the beginning suggests otherwise. They (NTMA) should stick to AER and stop this total % nonsense.

The NTMA, meanwhile, has increased the interest rates on State Savings products – prize bonds and deposit accounts offered through An Post.

The rate on offer on three-year savings bonds will jump from 1 per cent to 4 per cent, while savings certificates which lock savings in for five years will offer 9 per cent over that period, up from 5 per cent.


AIB and An Post raise interest rates for savers

Mortgage lender Avant says it will add up to 0.25 of a percentage point to its shorter-term fixed rates
www.irishtimes.com
 
Farotz said:
What I would like to understand better are the consequence of early withdrawal in terms of limitations/penalties/interest loss.
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AIB’s two year fixed term does what it says on the tin. Money locked up for two years, no provision for early withdrawal.
State Savings term products can be terminated at any time without penalty. You keep whatever interest has been earned to date.
AIB’s minimum deposit is €15,000. State Savings minimum is €50 for Savings Bonds and Savings Certs.
Bank of Ireland are now allowing 10% early withdrawal on their 2 year term deposit.
 
Marc said:
Still lower than an equivalent Irish Government bond over the same term
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Agreed, but it can get complicated for the average punter to work out the best on an after tax basis, but there are some long dated near-zero coupon bonds out there which are better than 10 year state savings.
 
RedOnion said:
Agreed, but it can get complicated for the average punter to work out the best on an after tax basis, but there are some long dated near-zero coupon bonds out there which are better than 10 year state savings.
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Agree. We moved a lot of our clients into state savings in recent years as the return on bonds was negligible.

Now that position has reversed, we are busy moving millions back into bonds for people who are confident they don’t need the cash short term but don’t want the whole portfolio in equities.

I have the whole Irish market in a spreadsheet refreshed daily with the IRR to maturity for each bond.

It really only takes a few minutes for us to check if you would be better off in a bond or the equivalent state savings product.

Equally if you can get more than 2.5% net of DIRT from a bank account without breaking the €100k bank deposit guarantee, go for it.

Just to note that a taxable coupon on a bond isn’t generally the worst outcome for many people, especially in retirement as typical average income tax rates are generally lower than the 41% flat rate applicable to funds.
 
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tallpaul said:
Absolutely the best strategy. Close them and reinvest. I did one back in June and will be doing the exact same thing.
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This isn’t quite as clear cut.

The interest rate lost on the old cert needs to be factored into the decision to switch.

In many cases it makes sense to wait until the next anniversary as the IRR from waiting can be huge if it’s only a few weeks away
 
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Marc said:
Exactly. But as you know, my default position is that most people shouldn’t attempt DIY investing in Ireland. It’s unnecessarily complicated
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And you have a vested interest in holding this line?
 
Thanks. As for "no provision for early withdrawal" for AIB, realistically they must must have provisions to handle situations where the client needs to get back his money early, e.g. to pay for unforeseen family emergency / medical treatment and similar.
 
Yes, they and other banks do indeed have provision for early termination in 'hardship' on a case by case basis. You get your initial money back, and that's it. There is nothing in the terms and conditions that allows for a penalty to be charged.
 
ClubMan said:
And you have a vested interest in holding this line?
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Lol. I could post a link to a free cure for cancer on here and I’d get a post back:

“Yes, but not everyone has cancer. What are you going to do for those of us in our mum’s basements, tilting at windmills?Nothing as usual”
 
Does anyone know if there is an easy way to reinvest in SS if applying for early repayment. I thought there was by ticking a box on the repayment form but looking at it there, I don't see it.

Let's say you apply for early partial repayment of a previous issue bond, what happens to the portion that isn't repaid - does it stay in the previous issue or does it become the current issue.

I am just looking back at my state savings and have a few hundred k in issues 6, 7 and 8 of the 10 year bond. Some of the later purchases, in particular issue 7, would be worth getting repaid early to invest in the new issue. It would be a pain though plus I presume that unless is possible to seamlessly reinvest, any money invested would be regarded as new funds and subject to the 120k maximum holding limit.

issue 6 - 16% total return
issue 7 - 10% total return
issue 8 - 16% total return
issue 9 (from 1st October 2023) - 22% total return
 
The one month delay is really, really silly. How many "tick the box" punters will have their maturity proceeds put into the old rates? More broadly, are they really going to accept new business at the old rates? Of course there is no problem with the deposit account or the prize bonds.
 
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As highlighted above, I figure that announcing the increase now with an effective date of 1 October will allow time for the staff to process all the refunds which will be made from now until the end of September. I did a lot of cashing in and repurchasing when issue 24 rolled around and some of the repayments, particularly for large amounts, took some weeks - even with my bank account connected.

It will be interesting to see what rates people who have certs maturing between now and 1 October will be offered.

I am guessing that NTMA will still limit individual holders of products to just €120,000 per issue. I will check out the details when the website updates.

As NTMA don't pay any interest in 5 year certs until the end of the second year I am planning to cash in any new purchases/reinvestments made this year into the new issue 25 up to the limit and convert some four year 2% NSBs into 3 year saving bonds at 4%.
 
The Terms and Conditions allow for early repayment in the following circumstances: Death, Bankruptcy, Offset by AIB against other monies owed by you. That's it. There is no mention of Emergency, Hardship etc. So you would be appealing to AIB's better nature, and at their sole discretion, in looking for early repayment. You would face a high bar in the earlier days, however the chances of getting early withdrawal would improve in the final year because of the potential bonus to the bank in retaining the interest "earned to date".

Realistically, this is a fix term product and you should treat this money as gone for the duration. The terms and conditions are here :

https://aib.ie/content/dam/aib/pers...posit/AIB-Personal-Fixed-Term-Deposit-TCs.pdf
 
The Ghoul said:
Does anyone know if there is an easy way to reinvest in SS if applying for early repayment. I thought there was by ticking a box on the repayment form but looking at it there, I don't see it.
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I think the reinvest tick box is only for matured products. It would make life easier for customers and for state savings for the same to be available for early withdrawals, but customer service isn't one of their strong points. So long as you have an online account it avoids the paper completely and is a two step process, (1) "Cash IN"which returns the money to your bank account and (2) "Buy Now" which allows you purchase the new issue up to the limit allowed by your Debit Card. I rolled over a number of products previously and it was pretty painless.

The Ghoul said:
Say you apply for early partial repayment of a previous issue bond, what happens to the portion that isn't repaid - does it stay in the previous issue or does it become the current issue.
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There is nothing that I can see in the Terms and Conditions to suggest that the residue in the case of a partial withdrawal will do anything other than remain where it is, at the rate it was originally issued, under the original cert number and Issue terms.

I have NSB issue 6 and 8. I won't be touching Issue 6 as these are in their final years and the yield between now and maturity is very good. I'll be cashing and reinvesting all of my Issue 8 bonds. I have other products (Savings Certs) which I will also look at reinvesting on a case by case basis, depending on whether or not I can beat the yield between now and maturity. Note @Marc made a very valid point in post #49 - it is worth checking the anniversary dates before withdrawing existing State Savings Fixed term investments, as they interest rate generally changes on the anniversary date and this can sometimes amount to a substantial uplift. In those cases you wait until the anniversary month to withdraw and reinvest.
 
The following analysis is for educational and illustrative purposes only and is not a recommendation to purchase a particular security without taking competent investment advice which I would strongly recommend taking.

Graph of Gross of tax and cost comparison of New State savings and an approximate equivalent Irish Government Bond.



Some key factors to consider.

  • The main consideration is capital risk. Bond prices move inversely to interest rates. So, if interest rates go up the price of your bond WILL go down. This is why the returns have increased in the last year or so and created this investment opportunity. Daily price moves don’t matter if you hold to maturity but there is a strong possibility you could face a capital loss if you buy a bond and sell it a short time later.
  • So, if you don’t have a lot of spare cash and you need to get your money back in a hurry before a bond matures then you are really a saver and you will be better off with savings certificates as even though you will earn no interest in the first year or so at least you won’t face a capital loss.
  • Whereas if you routinely place the max €120k in multiple issues of saving certificates and roll over from maturity to new issue then you are really an investor and should be looking to alternatives.
  • Some bonds have a taxable coupon which reduces the benefit for a taxpayer.
  • However many bonds have very low coupons (around 0.2%pa) so the tax drag is often negligible even for higher rate taxpayers.
  • The investment terms don’t exactly line up with State Savings products, but this is often beneficial. For example the comparison with the 10 year savings cert is actually an 8ish year bond
  • Since its launch we have held the view that the 10 year savings product is unsuitable for almost everyone. Locking in at or below inflation for a decade is virtually a guaranteed negative real return and therefore in real terms actually a “high risk” product. Over this time period unless you are only putting away trivial amounts, if you think this is the best place to put large amounts of money you should really be taking competent investment advice.
  • There is a fee to pay for quality advice and of course there are costs to trade and hold government bonds and paying for advice and custody will reduce your gross return but you should still obtain around 2.5%pa net of costs which is better than any equivalent savings certificate and, more importantly, you will get yourself into the advice process which in itself has considerable value.
  • Our dealing costs of 0.2.% amount to a drag of gross returns of around 0.07%pa over 3 years and 0.04% over 5 years assuming you don’t hit the minimums.
  • Custody and advice fees payable will further reduce the gross annual return and depend on the amount invested.
  • Custody In omnibus account with Pershing Securities (same as almost all the Stockbrokers in Ireland)
  • Minimum cost effective portfolio is c€250k+
  • We do not provide any execution only services.
  • To register interest https://everlake-2051.cashcalc.co.uk/register
 
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