National Solidarity Bond
April 29, 2010
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Posted by Money Guide
The idea of a National Solidarity Bond was announced in the 2010 Budget – full details were released today.
The details of the new solidarity bond were confirmed today. It will pay an annual interest rate of just 1% a year (fixed) with added bonuses for those who leave the money in for five, seven and ten years .
The maximum bonus after 10 years is 40% – so the maximum gross return possible is 50% over 10 years .
If you cash in the bond at the end of 5 years you will get a 10% Bonus
At the end of 7 years you will get a 22% Bonus and if you keep the bond for 10 years you will get the maximum 40% Bonus.
DIRT will be payable on the basic interest – but not on the bonuses.
A 50% gross return over 10 years is 4.14% AER . After DIRT this comes to 3.96% AER.
A normal deposit account would need to be paying 5.28% before DIRT to match that rate.
An investment of €1000 in solidarity bonds for 10 years will result in a balance of €1475. (3.96% AER Net)
Keeping €1000 in the solidarity bond for 5 years will give a balance of €1137.50 – after DIRT which is 2.5% AER (Net).
The bonds will be available for purchase in all post offices from Tuesday May 4th 2010.
With some instant access accounts paying as much as 3.3% before DIRT it will be interesting to see the level of take up for these new bonds that require a 10 year commitment to get the top rate of 3.96% Net.
There are already similar rates available with An Post : – the 17th Issue Savings Certificates over 5.5 years is paying 3.53% AER (Net)
The minimum individual investment in this Solidarity Bond is €500 . Savers can deposit a lump sum or put in regular lodgements of €25 or more. (The €25 a month will be put in an An Post deposit account until you reach a balance of €500 – after 20 months).
The maximum individual investment allowed in the solidarity bond is €250,000 . (€500,000 for joint accounts) There are no fees, charges or sales commissions attached to the bond.
Savers can access their money at any time without penalty – but the longer money is left invested the greater the return in the form of bonuses.
Money invested in these solidarity bonds will be used by the government to finance capital-investment programmes.
See other bank savings rates for comparison.
Also see www.StateSavings.ie for full terms and conditions of the solidarity Bond
UPDATE: Oher Savings bonds from An Post – state …” Interest earned on savings bonds is exempt from DIRT, income tax and capital gains tax in Ireland and is not returnable as income to the Revenue Commissioners ”
The Solidarity Bond Terms state clearly that the bonus is not subject to tax in Ireland – but it says that “Normal Revenue Commissioners requirements will apply to DIRT exempted accounts”.
Categories: Budget 2010, Deposit Accounts, Saving Money, Solidarity Bond
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Tags: statesavings.ie
If I invest a 5000 lump sum to start saving what will I come out with at the end of the 10 year term?
Andrew – As mentioned in the artice above “An investment of €1000 in solidarity bonds for 10 years will result in a balance of €1475. (3.96% AER Net)” So – for 5000 – just multiply this figure by 5. (It will be €7375 0
Forgive my ignorance, I am not too familiar with all this, but it does not seem like a great deal to me.
Firstly, inflation after 10 years is sure to bring down the value of this deal.
Secondly, this is exactly the same as putting the money into a bank that gives a 4 percent interest rate per year, for ten years.
Is this not the case? I mean there are banks that do that aren’t there?
If I put 1000 into a bank with a 4percent interest rate for ten years I would come out with over 1480 at the end.
Can anyone explain how this is a good scheme, in laymans terms, because I don’t see it.
Thanks for your time.
B
Ben – the rate is not brilliant – as it says in the main post “After DIRT this comes to 3.96% AER.
A normal deposit account would need to be paying 5.3% before DIRT to match that rate.”
There are no normal deposit accounts giving 5.3% at the moment – but rates could rise in the next few years.
See the best bank deposit rates here .
Do you have to be a resident to avail of this bond?
If I put 20,000euro in,is my 20,000euro secure? I would hope to leave it in for 10 years, will I get 30,000 euro at the end of 10 year period? If I need to access my money sooner, will I be penalised in any way? Am I gauranteed that the interest rate will remain the same, ie not go lower, over the 10 year period?
OK – just to confirm that my understanding is correct: DIRT will be payable on the interest earned, and then Income tax will be payable on total earnings i.e. bonus plus interest after DIRT?
Marie – it appears that it is just the annual interest that is to be declared .BUT – other AN Post Savings Bonds explicitly state that “interest earned on same is exempt from DIRT, income tax and capital gains tax and is not returnable as income to the Revenue Commissioners”
The lack of such a clear statement on the Solidarity Bond makes it hard to say for certain.
I have money ready to put into this but now wonder if its a good idea, is there anywhere to get a definite answer on the income tax issue? Is it only on the annual interest and not on the bonus?
Karen – here are the terms for the Solidarity Bond.
http://www.statesavings.ie/Downloads/NSBTermsAndConditions.pdf
It states that the Bonuses are tax free and that “Normal Revenue Commissioners requirements will apply to DIRT exempted accounts. ”
I think that means health levy and PRSI might apply.
Check with Revenue for the full story …