Savers to be hit hard as interest rates on string of State Saving products are cut

THE National Treasury Management Agency (NTMA) has cut the interest rates on a string of State Savings products, in a move that is set to hit savers hard.

The amounts that can be won on Prize Bonds have also been pared back.

The savings products, which are sold by An Post, are popular because they pay some of the highest interest rates in the market, and most of them do not attract DIRT.

Banks are now paying savers at best just 0.01pc for demand deposits, with larger customers such as credit unions and pension funds having negative interest rates imposed on them by banks.

And credit unions have been restricting member savings to as low as €10,000 as they grapple with a surfeit of savings and weak demand for loans.

The new An Post Savings Scheme rates took effect from yesterday, the NTMA said.

This means all new issues of the products will have lower rates.

However, the new lower rates will not affect those with existing Savings Certificates, Savings Bonds, Instalment Savings, and 10-Year National Solidarity Bonds.

The NTMA said: “Money which has already been placed in previous issues of these products will continue to receive the fixed rates applicable when the product was purchased, for the remaining term.”

However, from February the fund for Prize Bonds will be smaller for those who have them.

Instead of two €1m top prizes a year for those with Prize Bonds, there will now be four €250,000 top prizes per year.

This is an effective cut of €1m in the top prize.

There will be 10 prizes of €1,000, and 10 prizes of €500.

The remaining prize fund will be awarded in €50 prize sums.

The new prize fund will be 0.35pc of the Prize Bonds total, which was €4.1bn at the end of last year.

This works out at €143m in prizes.

An NTMA spokesman said: “The new rates reflect the reductions in interest rates in both sovereign bond yields and the retail savings market.

“State Savings interest rates were last adjusted in June/ July 2016, with the exception of Prize Bonds where the rate for the Prize Bond fund was adjusted in August 2017.”

The rate on newly issued 10-Year National Solidarity Savings Bonds has gone from 16pc to 10pc, which is from 1.5pc in annual terms to 0.96pc.

The rate on the five-year Savings Certificates is now 3pc, down from 5pc.

This means the annualised equivalent rate is now 0.59pc, down from 0.98pc.

Financial adviser John Lowe, the author of Money Doctors 2021, said that despite the cuts the State Savings Scheme products were still the best value in the market.

He said the most savers were getting from banks for demand deposits was 0.01pc.

These accounts allow holders to withdraw money without prior notice.

“The State Savings Scheme accounts are still competitive, even after these cuts,” Mr Lowe said.

The personal finance writer said the rate of inflation meant it was now costing people money to put money in the banks.

There are some €19bn invested in State Savings products, which includes the money in Prize Bonds.

When the money in the Post Office Savings Bank is included, the total is €22.7bn.

There is another €124bn in household savings in banks and credit unions.