How will the ECB rate cut affect your savings?

QMy wife and I are below retirement age but we depend on our savings for much of our income. What will the latest reduction in interest rates to negative levels mean for us? We are particularly interested in how An Post’s taxfree products – which we use regularly – compare with the banks when Dirt is taken into account. Are they still the best for long-term savings?

ALast Thursday another 0.1% was lopped off the main European Central Bank interest rate, leaving it at just 0.15%. Another, less important, interest rate even went into negative territory for the first time. This means banks will be charged 0.1% for parking funds with the ECB overnight.

The impact has already kicked in. Our Best Buys (see bottom of the page) have seen drops in recent weeks as the markets anticipated the cut. The best demand deposit rate fell from 2.3% to 2% a few weeks ago. And today, the top oneyear fixed rate comes down from 2.3% to 2.05%. It’s likely that these rates will continue to drift lower.

So how do they compare with An Post’s tax-free savings? When Dirt at 41% is factored in, even these top bank rates leave you with a return of only around 1.2%.

This compares with 1.75% per annum tax free with An Post’s Savings Certificates over five and a half years, or 2.66% on the National Solidarity Bond over 10 years.

To be fair, we are not comparing like with like here. An Post’s rates involve locking your money away for a very long time. Not having access to it is a big downside for most people and there is also the possibility that shorter-term rates will rise during that period.

However, for your purposes, they may suit nicely. But move quickly as An Post’s rates tend to follow the market down.

With regular savings, it’s a different story. An Post’s Instalment Savings account pays 1.75% but, again, you have to tuck your money away for five years.

This is less, even after Dirt, than the 4% and 3.5% offered by Nationwide UK (Ireland) and KBC, which also offer far easier access to your money.

QI don’t understand your assessment of entitlement for medical cards last week. If a couple had savings of €370,000 they could be assessed as having an income of nearly €60,000 a year, whereas the real income would be a tenth of this. Am I missing something?

AYou’re not missing anything. And we’ve had quite a few letters expressing the same sentiments this week. You’re right: the formula seems to assume that medical card applicants with sizeable savings are capable of getting returns that would wow Wall Street.

For those with smaller sums, it’s not so bad. The first €72,000 is disregarded altogether and the income assumptions for the next €20,000 are reasonable, working out at around 1.7% a year for €92,000, which reflects deposit rates. It’s only for sums above that level that the assumed income rates soar to the levels you describe.

The reason for this is that means tests don’t just assess income but your total capacity to pay medical bills. They force people with large sums in the bank to spend some of it on medical care. For example, wouldn’t the amount of money you mention pay for a pretty good health insurance package?

If you have a long-term illness or have financial difficulties, there may also be supports in the system available to you. (For more details see My View above and check the medical cards section of the HSE website, hse.ie).

QMy husband and I had medical cards awarded to us by the UK, where we both worked and which pays our pensions. When we initially applied for the cards, we were told to ignore the income section as this did not affect our entitlements. However, in the latest review, the HSE says we are losing them on grounds of our income.

AA HSE spokeswoman confirmed: ‘EU pensioners resident in Ireland and in receipt of a qualifying pension are entitled to a medical card. Pensioners from the UK must provide proof that they are in receipt of a UK social security pension.’

So it appears that you should be entitled to a card here. The HSE advised that you should contact it immediately to rectify any mistake that may have been made.