What Is the Government’s New Savings and Investment Scheme?

In Ireland, it has been revealed there is over €100 billion sitting in deposits across Ireland earning less than one percent – even when there is a wide range of saving and investment options available. It’s no secret that it can be challenging to decide where to put your hard-earned money to avoid it being eroded by inflation and sometimes you just don’t know who to go to or where to start.

To ensure your money is working at its fullest potential, check out these four essential savings strategies:

1. Segregate Your Savings by Time

Categorise your savings into short-term (next five years), medium-term (five years to retirement), and long-term (retirement and beyond) “pots.” This structure allows you to align your financial strategy with your timeline and risk comfort level. 

• For example, short-term savings should be in secure, low-risk deposit accounts. 
• Medium-term savings can include options like ETFs or diversified investment accounts with potential returns over 5% annually but may come with moderate risk. 
• Long-term savings, such as pensions, not only offer higher growth potential but also significant tax advantages.

2. Shop Around for the Best Rates

Once your savings are categorised, finding the best rate for each time period is crucial. While traditional Irish banks like AIB and Bank of Ireland offer low deposit rates, foreign online banks like Raisin, Trade Republic, and Bunq can provide more competitive interest rates of over 2% annually (before tax). Revolut’s entry into the Irish market has opened eyes to these options, demonstrating that better rates are achievable. For monthly savings, AIB and Bank of Ireland do offer rates as high as 3% (as of November 2024), but understanding the terms is essential to maintain those benefits over time.

3. Understand Fees, Charges, and Taxes

In today’s uncertain economy, getting the most out of your money is crucial. One of the easiest ways to improve your financial well-being is to ensure the interest on your savings outpaces the inflation rate. However, many of us need help figuring out where to begin – how much should we save and where should we put our money?

5 Tips to Maximise Your Savings

1. Get the Best Return on Savings

Look beyond Irish banks for better returns on your savings. Traditional options like the Credit Union, Post Office, or Irish banks are no longer the only choices. International institutions such as Revolut, Trade Republic, Raisin, and N26 offer competitive interest rates. Diversifying your savings across these alternatives can yield better returns and is a crucial strategy for maximising your savings potential.

2. Start Saving Early

Saving early is crucial to harness the benefits of compounding. Compounding means earning interest on your interest, accelerating wealth growth over time. The earlier you start, the more time your money has to grow, leading to significantly larger returns. Even small, regular contributions can grow substantially, providing a strong financial cushion for the future. Start early to maximise your investments and ensure a secure, prosperous financial future.

3. Save First, Spend Later 

In managing our money, it is important to consider all options for your savings.

While we often stick to banks in our own country, there are opportunities to earn more interest on our money by looking at foreign banks. This blog will show you how to explore international banking, find better savings rates, and make the most of your money.

Understanding Different Savings Rates:

Just like prices for things like coffee can vary between countries, so can the best savings rates for your money. For example, saving money in Portugal, Italy, or Sweden might earn you more than saving in Ireland.  As a smaller market with less banks, Ireland doesn’t have to be as competitive.

Using Online Platforms for Better Rates:

For Example Raisin Bank is a German cloud bank that provides banking as a service to fintech companies. It offers savings rates to individuals across variety of Banks across Europe under a variety of variable and fixed term accounts. It makes it easier to compare rates and move your money to international accounts. European banks can provide services here in Ireland, and if Irish households want to avail of those services and put their deposits in these foreign banks, that’s the way the single market functions. Trade Republic, another Berlin-based digital investment platform, provides instant access to your money and as of February 2024, provides a gross interest rate of 4% available for Irish Savers up to €50,000 under the EU Government Guarantee Scheme so check these out to get the best savings rates for your money.

Seeing the Benefits:

Let’s say you have €30,000 saved up for a house deposit. If you keep it in a typical Irish bank account, you will earn very little interest each year. But if you explore options abroad, you could earn a lot more, especially with Trade Republic (4%) or Raisin (3.65%) offering higher rates. The best available rates from retail banks in Ireland are currently around 2% for lump sums and 3% for online monthly savings and are only for a year with AIB and Bank of Ireland being the best of them. All are subject to Dirt tax at 33%.

Dealing with Taxes:

When you earn interest from savings accounts in other countries, you might have to pay tax on it. It’s important to understand these rules and make sure you follow them.  Whilst Raisin.ie and Trade Republic are subject to DIRT Tax, currently 33% on the interest, some institutions may be liable for Exit Tax @41%.

Best Savings Options for Irish Savers:

By looking beyond your local bank, you can take control of your savings and potentially earn more and get the best savings rates for your money. Irish banks might not always offer the best rates, so it’s worth considering other options. If the Irish banks continue to keep almost all the interest they are getting on Irish saver’s money to themselves then the answer is clear. Irish savers need to switch to better rates elsewhere.