Q & A

Please send your queries to Dominic Coyle, Q&A, The Irish Times , D'Olier Street, Dublin 2 or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.

Eircell/Vodafone

I was under the impression that the sale of Eircell to Vodafone would not go through if, over a 10-day period, the average Vodafone share price dipped below £2.10 sterling. In the run-up to the sale of Eircell to Vodafone, and indeed for the greater part of 2001, as far as I am aware, the Vodafone share price hovered at around the £2 sterling mark. If this is the case, how was the sale allowed to go through?

Mr G.L., e-mail

You are nearly right. It is true that Eircom had the right to walk away without penalty from the Vodafone/Eircell deal if the Vodafone share price dropped below a certain level - £2.20 sterling - on average over the 10 days before the extraordinary meeting that voted on the deal. However, that is not the same as saying the deal would not go through. It was simply an option open to the Eircom board.

The existence of such a threshold is not unusual and no doubt the Eircom board would have been assailed had it not negotiated such an exit strategy. At the same time, there was never any real likelihood that it would exercise its right.

The Eircom board would argue that pulling out of the deal would have made the shareholders' position worse as there were no other suitors in the wings and the company share price might well have plumbed new depths.

Euro

When we join the euro in January, is it true that Irish banks will charge a commission on an Irish euro business cheque made payable to a European (euro) business. If so, at what rates and why, since we are all in the euro?

R., e-mail

Euro or no euro, businesses conducting cross-border transaction by cheque will be charged for the privilege. Why? Quite simply, the problem is that there is no EU-wide clearing system for cheques. The currency may be the same but the cheques themselves come in different sizes and specifications, including digit sequence. Because of this, there is no way that automated systems in different EU states can handle cheques drawn on banks based in other states. This means the cheques have to be cleared specially. This takes longer and, of course, costs money.

The answer would be to create a trans-national clearing system but that is a forlorn hope. It is not just in the Republic that banks are trying to minimise the number of paper transactions. The trend is EU-wide and beyond. As such, there is little chance of the financial services sector investing hugely in a EU-wide clearing system and forcing all banks to standardise their cheques to meet its parameters.

The answer for retailers, according to the Irish Bankers' Federation, is to use credit transfers or account transfers, which are electronic and will facilitate the faster and cheaper movement of funds from one account to the other.

SSIAs

In recent articles about Special Savings Incentive Accounts, many experts have said the average investment term of these products is two-and-a-half years. As a result, they suggested that deposit account products are more appropriate for an investment term of this length. Could you explain how this figure was calculated and how it affects the type of product chosen?

Mr J.K., Galway

The answer lies in the monthly nature of contributions under the scheme. Basically, your first contribution is invested for the whole five-year term, but your final contribution would only be invested for one month. Taking into account the whole of the investment over the five-year term and the amounts of time each monthly contribution has to mature, investment advisers average out a two-and-a-half year maturity span. To get the full year span, you would have to lodge your full investment as a lump sum in the first month of the scheme - something you are precluded from doing because the Minister is looking to encourage regular saving rather than maximise your return.

In terms of product choice, the consequence of the shortened investment period is that there is less point in opting for an equity based scheme. Equity investments are seen as medium to long-term options, with a minimum span of five years and preferably more.

Unless you are prepared to leave your SSIA invested for several years beyond the end of the period in which the Government will contribute to the scheme, most advisers will urge you to steer clear of equity investments. Most illustrations drawn up to date show that, to beat the return on a straight deposit SSIA over the minimum five-year life of the policy, you would need to see stock market returns well in excess of those currently available. With much of the western world still worrying about whether it can avoid a recession, the chances against such a scenario are high.

Is there one location/source (Web address, booklet, phone number etc) where I can compare and contrast the available Government savings schemes?

Ms G.D., e-mail

The best I can offer is the special section of The Irish Times's website, www.ireland.com/ business/savings-incentive, which provides an archive of the newspaper's coverage, including a comparison of products undertaken by personal financial consultants Becketts Employee Benefit.