Trusting in the banks again

Q&A:I note from The Irish Timesof October 19th that the following banks are offering the best rates of interest on deposits: First Active, Rabobank and Anglo Irish Bank. Are these banks similar to Northern Rock?

How would they compare as regards deposit security? Should one still be wary of Northern Rock?

MG, Dublin

Northern Rock's crisis has undermined the belief that money invested in deposit accounts is "safe as a bank". Having said that, it is worth noting that the guarantees put in place by the British government - for both existing and new depositors - means that Northern Bank currently ranks as the safest financial institution in these islands in which to invest your money.

On the more specific issue in your question, First Active and Anglo Irish Bank are both Irish financial institutions, registered with and supervised by the Irish Financial Services Regulatory Authority.

Rabobank is registered in the Netherlands, where it is one of the country's largest financial institutions.

Are they similar to Northern Rock? Well, they are fundamentally the same model of institution. There are some significant differences.

While Northern Rock concentrated heavily in the mortgage market, that is not the case for either of the Irish banks. More significantly, Northern Rock came unstuck because of its reliance on short-term commercial loans from other banks to fund its operations.

No Irish bank - or Rabobank for that matter - is similarly exposed.

In reality, there is absolutely no reason to suspect that a deposit with any of these institutions would leave your money at risk.

Bear in mind that banks in general are becoming more cautious in their practices following the Northern Rock debacle.

But what would happen if the worst did occur? Irish banks provide a guarantee of 90 per cent of an individual's deposits - up to maximum compensation of €20,000. This means that the first €22,222 is covered by the guarantee in Ireland.

In the Netherlands, the situation is more encouraging.

There, the first €20,000 invested is guaranteed 100 per cent with 90 per cent of the next €20,000 deposited similarly covered.

The British situation prior to the Northern Rock situation was that the first £2,000 was covered 100 per cent with 90 per cent of the next £33,000 guaranteed. After Northern Rock, the chancellor of the exchequer said he would guarantee 100 per cent of the first £35,000 saved.

He has also expressed an interest in raising this figure to £100,000 but that is not yet in place.

It is worth noting that Minister for Finance Brian Cowen has indicated that Ireland will be reviewing its deposit guarantee - currently the minimum permissible within the European Union - with a view to making it more generous.

However, as with all these things, that could take some time.

Deadline for AVCs

I am looking to invest in AVCs to boost my pension. Someone was telling me that I can make a payment now that will reduce my tax liability for 2006. Is this true? Surely it should be my 2007 tax liability that is affected?

JC, Dublin

You can actually reduce your liability to tax for last year (2006) by making additional voluntary contributions (AVCs) to a pension before the end of the month. October 31st is the absolute deadline. The logic is that October 31st (next Wednesday) is also the deadline for self-assessed individuals to make their annual income tax return for 2006.

If you are looking to establish an AVC plan and have a lump sum that you would be able to invest, it would make a lot of sense to act.

However, you will need to move quickly because you have just three working days to establish your AVC plan, make the lump sum payment and get the forms through to the tax office.

Stamp Duty

I'm writing in relation to your article, "Stamp Duty Clawback" published last Friday, October 19th. In this article you say that a property owner will incur stamp duty clawback if the property is sold within five years of purchase. However, Revenue on its website clearly states: "A clawback will not arise where the property is sold to an unrelated third party during the five-year period."

As stamp duty is such an important feature in the property market I think it would be extremely useful if you could clarify when clawback applies.

LJ, by e-mail

I think you're perfectly correct. It will come as little surprise to hear that my reply on the issue of stamp duty clawback last week drew a large and immediate postbag.

The situation is quite clear. If, as a first-time buyer who has availed of the stamp duty exemption, you start renting out your property within five years of purchase, you will face a clawback of stamp duty from the Revenue.

There is no such clawback for people who, having availed of the exemption, sell their property within the first five years of ownership. My apologies for any confusion caused by what was a basic mistake.

To avoid any further concern, I should point out that first-time buyers can avail of tax relief on income up to €7,620 gained by renting out a room in their home while still living there under the rent-a-room relief without undermining their exemption. Bear in mind that the financial threshold is absolute.