State Savings (NTMA) bonds and certs looking good

Does the dirt going up have a big effect on the 10 year bond from 27 to 30 per cent. For example if I put in 50k what would the return have been over 10 years if the dirt tax had remained at 27 per cent. Now what would the return be if I put in 50k with dirt at 30per cent.
Lastly there is a good chance that the govt will keep on increasing the dirt and say they increase it to 40 per cent and I had 50k in for a full 10 years does the final amount reduce by a big amount to make the certs or bonds a better buy. Thanks.
 
I thought I'd revisit this thread seeing as many of the banks have reduced their deposit rates in recent weeks while there have been no reductions in the State Savings rates. I have "filled my boots" with savings certs and bonds but cannot buy any new ones as I'm up to the limit for both. Am now considering the 4 year solidarity bonds, prize bonds and 10 year solidarity bonds in that order.

None of them appeal to me as much as the savings certs and bonds but they are still pretty good. I'm reluctant on the 10 year solidarity bond as 10 years is a long time and there is a big penalty for early encashment. Also, both solidarity bonds are partially subject to DIRT which I believe is likely to increase again in the Budget.

One thing that I notice about the State Savings products is even with the good interest rates they seem to get very little coverage in the media, maybe they are regarded as unsexy When there is coverage it is often negative (eg Jill Kerby's "prize idiots" comments)

Anyone have any thoughts on any of this?
 
Let's start with Prize Bonds. According to the 2011 report and accounts there is currently a little over €1.4Bn "invested"

The Value of prizes awarded was €42M Or 3% of the value of the fund as stated in the sales literature.

The first observation is that the press on Friday reported that Ireland had returned to the bond market; "The Government paid interest of 5.9pc to borrow for five years and 6.1pc to borrow for eight years with the deals.

That is well above the 3.5pc it pays to borrow from the eurozone rescue funds, but the higher interest was needed to tempt investors back after a two-year absence."

NTMA operates both Prize Bonds and Bond auctions we can therefore conclude that Prize Bonds are a very good investment - for NTMA. The State is saving a shed load of interest here by not paying a market or even bailout rate of interest on this money. In fact on average the interest saved is easily as large as the total prize fund paid in any year.

So buying prize bonds and the solidarity bond is very patriotic but don't confuse this with it being a prudent investment - it isn't.

But even declaring a return of 3% is misleading unless one holds every single prize bond ever issued you won't win every prize and therefore the expected return will vary from this 3% for everyone.

Some people will win big and their return will be significantly more that 3%.

But most people will not win big prizes and therefore their experience will be worse than this.

If we strip out the rare large prizes, the prize fund reduces to around 31.7M which is just under 2.2% of the total fund. A "regular" bank saving account would need to be paying about 3.14% Gross to match this for an investor subject to DIRT. Of course even this 2.2% return isn't guaranteed but would represent a more meaningful description of most peoples likely experience.

So to sum up most people could "expect" a tax free return of about 2%pa with an extremely slim chance of winning a larger prize. Prize bonds therefore are a lottery. You gamble the certainty of bank interest in return for the right to dream that you might win a million despite the fact that you almost certainly won't - but you still could right? It's just clever manipulation of our inherent biases in the face of uncertainty.

We ignore the probable outcomes and the damage that failing to keep pace with inflation will have to our savings. We ignore the risk of default and the fact that Ireland is independently rated BBB+ by Standard & Poors because State Savings are guaranteed despite the fact that when Ireland goes to the market to borrow it has to pay nearly 6% for 5 year money.

The optimum holding in prize bonds is probably €25 since this gives you the right to lie in bed on a Sunday morning and dream what you would do with €1m? Anything more than this is just a triumph of hope over numeracy. But thanks for keeping everyone else's costs down. Imagine if no one put their money into State Savings products, Ireland would have to pay about 6% on all the debt. At the end of 2010 NTMA had €12.6 BN in various State savings products if the interest differential was 3% across the board then Irish citizens would be assisting the State to the tune of about €378 Million each year.
 
If a person (say a PAYE worker in the 41% tax bracket) purchases Irish government bonds @ 6% what's their net return after fees, tax, USC etc.

I agree that the return on prize bonds is not great at around 2.2% net or 3.14% "grossed up". However the point is that with bank deposit rates falling and possible DIRT increases in the future, prize bonds start to look better.

BTW inflation was 1.7% in the year to June and has been low in the last few years. Prize bonds returning 2.2% have performed better than some other "investments" in this time.
So what's the alternative to assisting the State - assisting the private sector financial services industry by paying fees and charges?
 
I had funds maturing in both the Permanent TSB and Nationwide U.K. stuck them in the 3 year Savings Bonds this week. If the government introduce DIRT on these products I will be very disappointed.
 

I'm not suggesting that anyone buys Irish government bonds either by the way just making the point that an equivalent rate of interest to reflect the default risk would be more like 6% rather than the 3% on offer.

As for the alternative to assisting the State it's obviously the free market. As a believer in free market economics I for one would much prefer investors to allocate their savings to the capital markets rather than shore up the State's finances since it is a more efficient and productive use of their capital.
 
I'm planning on moving my money from AIB Direct Deposits (was moved from Anglo to them) to State Savings. The rate's are just getting cut all the time and I think I'll go for the 3 or 5 year option with State Savings.

My question is - does anybody know of an An Post office in Dublin I can visit -bring in all document's etc. and get every thing looked after and get a receipt for lodgement of cheque. I dont fancy doing this in my local post office.
 
Is it possible to open a second State Savings Certificates account, provided they don't exceed the €120,000 limit together?

Thanks.
 
"No 3rd party cheques but those payable to account holder" - I'm planning on closing some AIB Direct a/c's so If I just simply request a cheque payment as closure from AIB, I can just take this with me and lodge into bonds or certificate a/c?
 
I lodged a cheque for the proceeds of a PTSB account recently and there were no issues, it was made payable to me. So I'd imagine you'll be OK.
 
camlin90 said:
I lodged a cheque for the proceeds of a PTSB account recently and there were no issues, it was made payable to me. So I'd imagine you'll be OK.
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- Thanks I was only with AIB as a result of being passed from Anglo and since that they closed down the very basic online service and rates just keep getting lowered.
 
Buying a State Savings bond or cert from any post office is a hassle free process in my experience. I have bought certs and bonds ranging from 200 euro to 70,000 euro. It is no problem if you are lodging a mix of drafts, cheques and cash (although there may be a limit in how much cash they'll take at one time) AFAIK it's possible to use a laser/debit card as well.

It takes about 5 minutes at the counter. In contrast to depositing money in a bank, you won't have to make an appointment and you won't get a sales pitch from some "advisor" trying to sell you a different product.

Have all your documentation ready and have the form printed and filled in beforehand
http://www.statesavings.ie/Downloads/ApplicationForm.pdf

Once you have your certs and bonds bought you do not have to visit the post office again when reinvesting as everything is done by post with freepost envelopes provided.
 
Great post The Ghoul - will be moving most of my money into state savings. Every day I seem to dislike the banks even more but the bottom line is the rates just dont match up to state savings.
 
theresa1 said:
but the bottom line is the rates just dont match up to state savings.
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Yes and no.

For short to medium term deposits, under 3 years, banks offer better rates (e.g. Ulster @ 3.83%).

For lump sum variable rate products, banks (KBC @ 3.25%) marginally offer higher rates than State Savings (30 day notice @ 3.00%). If rates continue to plunge, then State Savings may eventually lead the variable rate pack.

State Savings destroy the banks when it comes to long dated term deposit products. There is no rate competition from the banks.

It is not beyond possible that the NTMA will adjust State Savings rates downwards, but given the national deficit refinancing needs, over the coming years, State Savings rates may stay static.
 
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