Is it worth saving for a rainy day in the current climate?
Under-50s are unhappy with how much they can put aside, while over-50s are unhappy with their returns
To save or not to save, that is the question. And you’ll get a different answer from baby boomers than from those their junior.
A recent Nationwide UK (Ireland)/ESRI savings index shows a nation divided when it comes to saving. While the cash-strapped under-50s are unhappy with the amount they can put aside, those over 50 are unhappy with their returns.
The index shows that 68 per cent of those under 50 feel they are saving less than they think they should. Those over 50, meanwhile, are peeved by increased taxes on savings, with 62 per cent believing that Government policy discourages the habit.
With pressure on disposable income caused by austerity, and deposit interest retention tax (Dirt) hiked up to 33 per cent in the last budget, the findings are no surprise.
But things might be starting to change. An Irish League of Credit Unions study finds that, for the first time since April 2011, more people are saying they are in a position to save.
Four in 10 of us are now squirrelling away something at the end of the month, the average amount being €170. But whether you’ve got a little or a lot to put aside, where can you get the best return?
For those in the market for a regular savings account, overseas banks doing business in Ireland top the leader board for returns. “Rabo, KBC and Nationwide are the top performers,” says Frank Conway, founder of the Irish Financial Review website.
Based on monthly savings of €180 with instant access to your savings, Nationwide UK (Ireland) is offering 4 per cent annual equivalent rate (AER), KBC 3.5 per cent and Rabo 2.25 per cent. All three are variable rates, which means your interest may change from time to time.
Nationwide and KBC require minimum monthly deposits of €100, but there is no monthly minimum at Rabo – handy if an unexpected expense crops up.
While Nationwide offers the best rate, you have to commit to saving for 15 months. Also, the maximum monthly lodgment is capped at €1,000 and, while there are two free on-demand withdrawals in the 12-month period from April to March, third and subsequent withdrawals mean a 30-day interest charge on the amount withdrawn.
But if you’re happy with all of that, based on savings of €180 a month, gross interest earned in one year will be €46.80 at Nationwide and €40.95 at KBC. This is based on interest being calculated monthly. Don’t forget Dirt at 33 per cent will be applied to the interest.
One thing to watch before moving your money into a regular savings account, however, is the avoidance of fees. With some banks requiring balances of between €2,500 and €3,000 per day or per month in your current account, be careful that money moved from a current account to a savings account doesn’t sting. “Otherwise the gains to be made by moving to PTSB or Rabo or KBC could be eaten up on the other side by charges,” says Conway.
Apart from good rates, foreign-owned banks are proving attractive in other ways, according to Conway. “The big issue for most people is security. You’ve got Rabo, which is guaranteed by the Dutch central bank, and KBC, which is Belgian . . . By the time people pay Dirt, a third of the interest they have earned is gone, but they want that money to be there, they want it protected.”
Nationwide UK (Ireland) comes under the UK’s deposit protection scheme.
But if you’ve got less to save, such as €60 a month, should you even bother? Permanent TSB’s Online Regular Saver Account will give you 3 per cent AER (variable), AIB’s Online Saver Account 2.95 per cent and Ulster Bank’s Special Interest Deposit Account will get you 2.5 per cent. While there is no minimum monthly deposit at PTSB, AIB requires a minimum deposit of €10, Ulster Bank just €1.