Which scheme is best for you?

A total of 14 financial institutions are marketing deposit accounts under the Special Savings Incentive Scheme (SSIS). Many credit unions affiliated to the Irish League of Credit Unions will also offer accounts.

Data prepared by Becketts Employee Benefit and Personal Financial Consultants set out the SSIAs available ranked according to the interest rate offered. Table 1 (below) examines variable interest rates accounts while table 2 (inside) examines fixed rates products. Savers must first decide to go for a variable or fixed interest rate account.

A fixed or variable rate account?: With variable rate accounts the interest rate is based on underlying market rates and will rise or fall with changes in the European Central Bank (ECB) rate. Over the five-year SSIS term the rate of return is likely to change. Fixed rate accounts offer a predetermined guaranteed rate of return over at least part of the term. If market rates fall savers do not suffer but if rates rise they will not benefit. Choosing between fixed and variable accounts involves taking a view on how market interest rates will move. The general market view is that ECB rates are likely to go down over the next two years. So savers opting for variable rate SSIAs may see returns falling or at least not rising from current levels for the next two years at least.

Variable rate SSIAs (table 1): Savers opting for variable rate deposit accounts should look for the best combination of the highest initial interest rate, highest guaranteed ongoing rate and a low minimum contribution level. Like all new products there are some attractive "special" offers trumpeting high initial interest rates. But SSIAs are five-year products where returns will vary with market interest rates over the term. The most important rate for savers is the guaranteed minimum ongoing interest rate on offer. The ACC "special" offer product, available until September 1st, 2001, is the best on the market. It is offering the ECB rate, currently 4.75 per cent, and the minimum saving required is £10 per month.

The Northern Rock guarantees the ECB rate but only savers who can save £200 per month can benefit. This product has a sting - if savers' contributions drops below £200 in any month, the rate falls to ECB rate less 1 per cent, until the minimum £200 contribution is recommenced.

After the ACC "special" product closes, its ongoing offer of the ECB rate less 0.5 per cent remains one of the best on the market. This guaranteed rate is matched by Irish Nationwide, Ulster Bank, and the EBS, who will all accept a £10 per month minimum contribution. First Active and Anglo Irish Bank are offering the same rate but require minimum monthly contributions of £50.

Savers need to look at the underlying guaranteed relationship with ECB rates, Mr Norman Barry from Becketts said. The danger is that institutions use high headline rates to tempt people in but drop below market rates once the funds are on board, as has happened with similar saving products in the UK, he added. A minimum guarantee related to the ECB rate is a protection for savers.

Fixed Rate SSIAs (see Table 2 and assessment inside) Accrual/crediting of interest: Interest rates are accrued daily on all the accounts detailed. None of the financial institutions is crediting - paying in - this accrued interest to accounts daily. Hence, the saver does not get interest on the interest earned on savings made during each year. All institutions, except Irish Nationwide, are crediting the interest on an annual basis rather than at maturity, which is less beneficial.