Savers in Ireland continue to miss out on maximising the return on their savings

Derek Keogh, Head of Personal Savings at Anglo Irish Bank discusses recent official data which shows that the majority of savers lose out by not taking action to switch their savings from low rate payers.


Choosing the right account for you isn’t always a straight forward decision. There’s so much choice on the market and accounts can vary widely. However, doing something is better than doing nothing as the potential to greatly increase interest returns exists. Derek Keogh from Anglo Irish Bank answers some of the most frequently asked questions by savers regarding savings accounts:

“Given the wide range of products available in the market paying rates of up to 3.5% gross/AER fixed compared to low average rate that savers are actually earning (0.63% gross/AER variable for overnight / demand funds according to the Central Bank of Ireland’s latest statistics)”, Mr Keogh comments. “For the average saver, with €20,000 on deposit they could be earning over €500 more gross interest based on taking action to move from the low rate account.”

To ensure savers are comparing like-for-like, they should be familiar with the following terms as part of the comparison process:

Gross
This term generally means before deductions, when banks are promoting their products you will often see the interest rate followed by the term “gross”. This will generally mean the rate of interest earned on a deposit account for the duration and before the deduction of tax.

AER
This shows you what the interest on a savings account would be if the interest was compounded and paid out to you each year (instead of monthly or over any other period). You may earn less than the AER because your money may not be invested for as long as a year. Sometimes firms use Compound Annual Rate (CAR) instead of AER on savings and investment products.

Fixed Rate / Term Accounts
With fixed-term deposits you put money into your account for an agreed amount of time. Usually the interest rate is fixed for that period and if you take money out during that time you may pay a penalty.

Variable Rate Accounts
Variable rates rise and fall in line with general interest rate changes in the euro zone. Variable rates offer the most flexibility (over fixed rates) and allow you to withdraw part or all of your funds without having to pay any fees or penalties.

Notice Accounts
This is a savings account on which the customer is contracted to give a specified notice period before making a withdrawal. A penalty may be imposed by the bank providing the account if a withdrawal is made prior to or without the agreed notice period being undertaken.


The material contained in this article is for general information purposes only and does not constitute investment advice or an offer to buy or sell or a solicitation of any investment products or other financial product or service. You should not act or refrain from acting on the basis of any material contained in this article without seeking appropriate professional advice. All information is provided “as is” and without warranties express or implied and Anglo Irish Bank Corporation Limited accepts no liability whatsoever for any inaccuracies, errors, omissions, opinions or misleading information or for any action taken or not taken in reliance on the information in this message. Any expressions of opinion are current opinions as at the date of publication and are subject to change without notice.


Anglo Irish Bank Corporation Limited is regulated by the Financial Regulator in Ireland.



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ISA Allowance Increased By £3k

Chancellor Alistair Darling's latest Budget has given savers a boost, with a £3,000 increase in the annual allowance under tax-free ISAs. The new total annual allowance will be £10,200, rising from the current £7,200 limit, and will apply to those aged 50 and over from this year. The increased allowance will be extended to everyone in 2010.

Mr Darling said that the new overall allowance included an increase in the cash limit from £3,600 to £5,100. Since their launch 10 years ago, almost £290 billion has been saved in tax-free ISAs, the Chancellor said, with 18 million people having taken them out.

All money held in an ISA grows free of tax, with savers currently able to put in up to £7,200 a year in equities or a combination of equities and cash. The latest Budget announcement marks the second ISA allowance increase since their introduction in the 1999 Budget to replace former tax-efficient savings vehicles PEPs and TESSAs.

The total allowance was increased last year from £7,000 to £7,200.

Savings: Tax-free savings boost to combat lower interest rates

Hard-pressed savers received a welcome boost in the Budget, with the Chancellor announcing that the amount of money they can pay into an Individual Savings Account each tax year will rise from the current £7,200 to £10,200. The popular cash element of ISAs will rise from £3,600 to £5,100. The new higher ISA thresholds will come into force this tax year for people over 50 and for everyone else from April 2010.

All money paid into an ISA is allowed to grow free of tax. The Treasury estimates there are 18 million ISA account holders and successive cuts in interest rates, as the Bank of England has slashed the cost of borrowing, have left them out of pocket. Pensioners, who rely on interest from their savings to cover living expenses, have especially felt the pinch as a result of the rate cuts. When the plight of savers became clear a few months ago, Treasury insiders promised a "Budget for savers" but in recent weeks such talk has been muted. Yesterday's move on ISAs was therefore greeted with some relief. Adrian Coles, director general of the Building Societies Association, said: "The recent interest rate cuts have meant savers have seen their income drastically reduce, so this will help give a greater incentive to save."

However, the tax break will do little to repair the damage already done to savers' finances from cuts in rates paid by banks and building societies. Raising the cash ISA limit will put an extra £30 a year back into the pocket of savers who have the maximum annual amount of money invested in an ISA, based on the current average rate of interest of just 2 per cent, according to financial information firm Defaqto. Last autumn, savers could routinely find cash ISAs paying more than 6 per cent interest.

Savers are also concerned by the cutbacks on pension tax relief for higher earners. "This could be the thin end of the wedge," said Peter Timberlake of insurer Friends Provident. "What is to stop the Government lowering this £150,000 limit to £100,000 or £50,000 in the future, gradually dragging people in? We have an ageing population and a pensions saving shortfall in this country. The Government should be encouraging saving for retirement, not making it less tax efficient."

Sourced from Independant [Link]

High Earners Given ISA Advice

High earners can avoid some the tax hikes announced in the latest budget by shifting more of their salary into a pension fund and increasing ISA contributions, according to experts.

The Institute for Fiscal Studies said the 50% tax rate may not deliver the full amount of revenue the Treasury had hoped unless the Government brings in more stringent measures to block avenues of tax avoidance.

Chancellor Alistair Darling has already cut pension contribution relief in a bid to stop those with high salaries placing more of their wage into a pension fund to pay less income tax.

But this still works out as a good option for the next two years, before the new 20% relief rate is brought into force.

Expanding on the revenue maximisation theme, senior tax partner at BDO Stoy Hayward Stephen Herring, said: "The first basis is to maximise pension contributions in the next two years, and maximise contributions to ISAs noting that the limit goes up to £10,200 in October for the over 50s and for everyone else in April next year.

"Then if you're of the mindset that you're willing to take a high level of investment risk, you can look at the Enterprise Investment Scheme and Venture Capital Trusts which provide tax relief."

Sourced from Confused.com [link]

Tesco's Bank Savings Balances Boost

As supermarket chain Tesco announced record annual results, it also revealed it has seen a near-doubling of savings balances at its retail banking arm since the downturn began.

Since last autumn's financial crisis began, Tesco has relaunched its banking operation, Tesco Personal Finance (TPF), as a safe haven for savers to deposit their cash.

TPF has gained success through low consumer confidence in established brands, particularly among its own loyal customers, as the saving balance rose from £2.5 billion in mid-October 2008 to more than £4.5 billion by the end of February.

The group appears to be turning TPF into a full-service retail bank as it has now bought out former partner Royal Bank of Scotland to take the 50% it did not own last December.

Tesco plans to open 30 bank branches in its stores by the end of this year, following a trial which has been running in Glasgow since 2006.

TPF now has six million customers since it launched 11 years ago and offers services including credit cards, pet insurance, bureaux de change and savings accounts.

Sourced from Confused.com [link]