National Solidarity Bond versus Savings Certs?

PERSONAL FINANCE:Your queries answered

Q

Could you explain the benefits of investing, say €10,000, in a National Solidarity Bond for 10 years over investing the same amount in Savings Certificates for five and a half years and reinvesting the gross amount for a further five and a half years.

Obviously the term is a year longer, but how would the final returns compare?

- Ms C.C., e-mail

A

It’s an interesting question, given that people are so much more familiar with the concept of An Post’s Savings Certs.

If you invest €10,000 in the National Solidarity Bond you will receive a total of €14,750 after 10 years, allowing for tax.

If, instead, you put the money into Savings Certificates, they will yield a total of €12,100 at the end of their five year, six month term.

Assuming the same interest rates are on offer at that time – something at the discretion of An Post – your fund at the end of the second full term, ie, 11 years after your initial investment, would be €14,641.

Of course, Savings Certificates are not liable for tax.

As a matter of interest, if you did roll over the Savings Cert investment and withdraw the money after 10 years – the same term as the National Solidarity Bond – your savings would amount to €13,866.60.

No guarantee for Evergreen, so what next?

Q

I invested €530,000 in the Evergreen Fund S9 in December 2006 for a five-year term. The policy was sold as “medium risk”. The word “guaranteed” was not used in relation to the three levels offered.

Bank of Ireland recently told me I was not covered by a guarantee. They said 10 per cent of the fund comprised property. In October 2008, the policy has a net value of €348,125. That now stands at €360,000.

What advice do you have regarding the guarantee. I intend completing the term and can only guess its value by then.

- Mr M.W., Westmeath

A

As you now know, you bought into the Evergreen Fund at effectively the top of the market. In 2007, the fund lost 7.2 per cent, a figure which paled into insignificace next to the 33.5 per cent hit it took in 2008.

As your valuation indicates, things have recovered somewhat from there with a 12.4 per cent gain last year, but it is still trading roughly 30 per cent below the level at which you bought in. For what it’s worth, the fund grew over 4 per cent in May so your current value is possibly slightly ahead of the last figure quoted to you by Bank of Ireland.

It is not covered by guarantee. There was a guaranteed Evergreen fund but not this one and unit funds do not come under the terms of the State guarantee. I don’t know when Bank of Ireland told you that only 10 per cent of the fund was invested in property. At the end of May, property accounted for 20 per cent, up from 19 per cent in April. Most of its top property investments are in the UK.

In equities, it has recently increased its exposure to north American stocks, which, at 29 per cent, are the largest geographical holding. In terms of individual stocks, it remains strongly invested in banks, including Barclays, BNP Paribas, HSBC and JP Morgan. CRH is the only Irish holding among its top 10 stocks.

Follow the fund’s performance at fundcentre.bankofirelandlife.ie

This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into.

Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2. E-mail: dcoyle@ irishtimes.com