State Savings (NTMA) bonds and certs looking good

[seantheman]

It is not beyond possible that the NTMA will adjust State Savings rates downwards

If i take out a state savings product for 3 or 5 years tomorrow, will i get the current rate on maturity even if rates are adjusted downwards in the future?
Similarly can DIRT be introduced retrospectively to these products at (budget) anytime?

 

[The Ghoul]

If i take out a state savings product for 3 or 5 years tomorrow, will i get the current rate on maturity even if rates are adjusted downwards in the future?
Similarly can DIRT be introduced retrospectively to these products at (budget) anytime?

The interest rates and terms and conditions for State Savings products are in various Statutory Instruments eg for savings certs
http://www.irishstatutebook.ie/2007/en/si/0827.html

I had a look at this legislation to see if there is a "get out" that allows the conditions for already purchased products to be changed - couldn't find any. Therefore it seems to me that the law would have to be changed. It would be a drastic move for the State to attempt to alter the terms and conditions for already purchased bonds and certs. It would be politically suicidal and who would ever purchase any of the products ever again if it happened.

So IMO it is highly unlikely that they would retrospectively introduce DIRT or change the rate.

 

[harriet]

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.

Ciaran T I am looking at moving money from an account I have that I don't need for a couple of years - how long is long term with Stage Savings scheme

 

[so-crates]

Ten years is I believe the maximum on the State Savings

[broken link removed]

 

[Lightning]

Ciaran T I am looking at moving money from an account I have that I don't need for a couple of years - how long is long term with Stage Savings scheme

State Savings offer market leading rates on their 3 year to 10 year term deposit products.

 

[The Ghoul]

Re: state savings vs Ulster Bank shorter term deposits, here is a compound interest calculator that is useful for predicting what you might earn from a 1 year fixed term deposit if you reinvest it for 2, 3, 4 etc years. That's assuming rates and DIRT stay the same - which are pretty big assumptions.
http://www.moneychimp.com/calculator/compound_interest_calculator.htm

Let's say you have 10,000 to invest. UB's 1 year account pays 3.75% gross. If you open this account and after 1 year reinvest at the same rate and same DIRT for another year, after year 2 you'll have 10,532.92

If you buy a State Savings bond with your 10,000 and encash it early after year 2 you'll have 10,520. Slightly less than the UB but it is guaranteed unlike the UB return which is subject to the assumptions I described above.

 

[askU]

Re: state savings vs Ulster Bank shorter term deposits, here is a compound interest calculator that is useful for predicting what you might earn from a 1 year fixed term deposit if you reinvest it for 2, 3, 4 etc years. That's assuming rates and DIRT stay the same - which are pretty big assumptions.
http://www.moneychimp.com/calculator/compound_interest_calculator.htm

Let's say you have 10,000 to invest. UB's 1 year account pays 3.75% gross. If you open this account and after 1 year reinvest at the same rate and same DIRT for another year, after year 2 you'll have 10,532.92

If you buy a State Savings bond with your 10,000 and encash it early after year 2 you'll have 10,520. Slightly less than the UB but it is guaranteed unlike the UB return which is subject to the assumptions I described above.

If you withdraw after yr2 with an post - do you lose all interest?

 

[The Ghoul]

If you withdraw after yr2 with an post - do you loose all interest?

Obviously you lose the interest for year 3 but you get the interest for years 1 and 2 provided you wait until the anniversary date. If you encash before the anniversary date you lose a year's interest. Eg if you encash after 1 year and 364 days you lose all the interest for year 2.

With savings cerst there is an anniversary date every 6 months whereas with bonds it's every year.

 

[Daddy]

Just on saving certs and bonds - wondering when is the next likely date that these will be reviewed - the current issues I presume have a certain date by which one must purchase. In all likelihood the next issues will come with lower interest rates in light of all institutions reducing their deposit rates. So is there a date one must get in by while the very attractive rates are still available.

 

[The Ghoul]

IMO its hard to predict when the next change will be and how the interest rate will go. Given the cost of borrowing on the markets, State Savings products seem to be a good deal for the State and individual savers are happy enough with them too. So I could see the current issue lasting for a while yet

In the case of savings certs, from irishstatutebook.ie:

17th (and current) issue was introduced on 1/8/2007 interest 21%
16th issue was introduced on 23/12/98, interest 16%
15th issue was introduced on 5/5/98, interest 25%

There were amendments to the 16th issue in 2004 and 2006 to make some changes including increasing the maximum holding but the interest rate did not change.

I wonder why there was such a short gap between the 15th and 16th issues.

 

[Lightning]

I would guess that the NTMA will wait until the we properly return to the market, if that happens, before they make any changes. However, the State Savings 30 day notice account rate might change sooner.

The Ghoul - Thanks for sharing the location of historic State Savings interest rates. I enjoyed reading through the deposit rates over the last few decades!

 

[149oaks]

I have a Bond that is due to mature shortly. What happens if I do nothing i.e. will it be re-invested in another Bond if I don't want to take out the money? Or will I have to cash it and purchase another?

 

[The Ghoul]

I have a Bond that is due to mature shortly. What happens if I do nothing i.e. will it be re-invested in another Bond if I don't want to take out the money? Or will I have to cash it and purchase another?

Before the maturity date, they will write to you and enclose a form. If you want to reinvest you tick some boxes on the form and send it back to them (freepost) with your bond enclosed. You can also choose full or partial repayment or can choose a different State Savings product on the form.

 

[149oaks]

Thanks for that Ghoul

 

[helvetica]

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.

Marc, this seems like a good point, the return is relatively low if you consider the bigger risk picture. I would love to know your thoughts on any specific areas of the capital market you would consider investing in for a similar risk profile. Maybe not an alternative, but to compliment a state savings bond/cert. any recommendations? Cheers

 

[Lightning]

SBP: State Savings Deposits Double, Banks Pressure NTMA for Rate Drop

According to The Sunday Business Post:

• 1.4 billion EUR increase in State Savings deposits this year.
• State Savings deposits have doubled from 7 billion EUR in 2007 to 14 billion EUR today.
• Banks have started lobbying the DoF to reduce State Savings rates.

It has been many years since the NTMA have reduced their State Savings rates. It is clear that direct pressure is now on the NTMA/DoF to reduce the State Savings rates. Surely, the NTMA will have to give with some, but maybe not all, of the State Savings rates. Hence, there might be limited time to bag high State Savings rates.

 

[Boscod]

Listened to the business news on RTE radio this morning. The discussion was about Greece, and the possibility of another write down of their government debt, post the German elections in 2013. The contributor (can't recall his name) then went on to say, if Greece's debt was reduced, that could then leave the door open for Ireland and Spain to follow suit.

Any views on how/if these state savings products could be impacted in such an event?

 

[Lightning]

Any views on how/if these state savings products could be impacted in such an event?

Official speaking, the IMF/EU/ECB have primary creditor. Everyone else, including State Savings, have secondary creditor status. Secondary creditors would be subject to a haircut if there is a debt restructuring.

 

[kdoc]

Given the news from he budget, State savings are looking better than ever.

 

[kamakaze J]

Obviously you lose the interest for year 3 but you get the interest for years 1 and 2 provided you wait until the anniversary date. If you encash before the anniversary date you lose a year's interest. Eg if you encash after 1 year and 364 days you lose all the interest for year 2.

With savings cerst there is an anniversary date every 6 months whereas with bonds it's every year.

If I plan on only saving for 2 years + 1 day is there any point in going for the 3year one rather than the 5year 6months one so as the interest rate is better on the longer term one?