Comparing Irish Bank Deposit Rates and State Savings: Making the Right Choice

By Rebecca Scaife

Published on: June 20, 2023

State Savings An Post Ireland

After six interest rate increases, savings interest rates in Ireland are finally showing some upward movement. A 0.5% rise on certain Bank of Ireland savings interest rates was recently announced.

However, the National Treasury Management Agency (NTMA) has only increased the interest rates on Irish State Savings products at the end of March, marking the first increase in 16 years. This raises the question: Should you leave your money in the bank or explore State Savings as an alternative? And: what’s the best interest rate on savings in Ireland?

Let’s explore the factors you need to consider before making a decision.

State Savings vs. Deposit Accounts

You can purchase State Savings products online or with An Post at any post office. The NTMA offers and manages these products, providing a state guarantee and a fixed rate for a fixed period of time. The best part is that they are tax-free. For instance, their latest 5-year product offers a tax-free interest rate of 0.98% per annum, which currently surpasses bank rates. Visit Revenue for more details on Deposit Interest Retention Tax (DIRT) applied to credit union savings accounts and bank deposit accounts.

Considering Your Cash Needs

Regardless of recent rate rises, our advice remains consistent. It’s better to keep a sensible amount of money in your bank account for day-to-day expenses and maintain an emergency fund or “just in case” money in State Savings Certificates. State Savings Certificates have terms of 3, 4, or 5 years and require a notice period of 7 working days for withdrawal. By gradually withdrawing money from State Savings over time, you can retain the tax-free aspect of the return. Additionally, if you have surplus cash that is unlikely to be needed in the foreseeable future, it’s more beneficial to use it to reduce debt or make pension contributions.

Importance of Guarantees

The recent failures of banks like Silicon Valley Bank (SVB) have emphasized the significance of guarantees. Irish banks only guarantee deposits up to €100,000 per depositor with each institution. In contrast, State Savings provide complete protection for all your savings without any upper limit. This protection never expires, making it a crucial benefit to consider.

Existing State Savings Holders

Determining whether to cash in existing State Savings products and purchase new ones requires careful analysis of rates and terms. For example, the recent issue of 5-year certificates pays 0.98% per annum, while the previous issue paid 0.59% per annum. If you invested a year ago, cashing in today would result in no interest for the previous year. Waiting one more day to reach the 1-year mark makes perfect sense as it allows you to earn 0.1%, equivalent to over 30% annualized return. However, if you stick with the original term for the remaining 4 years, you will continue to earn 0.59% per annum, making it unwise to switch to the new 4-year account, which only offers 0.50% per annum.

Prize Bonds

Prize Bonds can make a great present for children over gifting cash in a card. However, we don’t generally recommend prize bonds as a method of saving. Any significant amount of Prize Bonds should be encashed and invested in State Savings Certificates to generate a return and avoid being eroded by inflation.

Comparison with Irish Government Bonds

Irish Government Bonds provide fixed returns and actively trade in the market. As interest rates rise, the value of existing bonds decreases since they offer a lower coupon compared to newly available bonds. For example, the 0.20% per annum Treasury Bond 2027, maturing in 4 years, currently trades at around 90.84 and will be redeemed for 100, resulting in an annualized capital gain of 2.35% per annum if held until maturity.

In comparison, the 4-year State Savings account offers 0.5% per annum. Similar considerations can be made for the 0% Treasury Bond 2031 compared to the ten-year State Savings product, which pays 1.5% per annum tax-free. However, it’s important to remember that these bonds are not risk-free and investing in real assets like stocks and real estate may offer returns above inflation.

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