Making Cents: Kildare's financial questions answered

I'VE received lots of questions from readers over the past couple of weeks, which is why I’m doing a second week in a row of questions and answers.

Question
I have c. €30,000 sitting in a deposit account and it's earning nothing but I need access to it as we are actively looking at buying a property. So, we might need the money in 12 days or 12 months, we just don’t know. My question is, is there any account available that will (a) pay more in interest than what I’m getting right now which is 0.10% and (b) where I’ll also have access to the money and (c) my money is capital guaranteed.

Answer
Okay first off, you’re actually earning less than that.

That 0.10% is a gross figure and when you factor in DIRT tax, the net rate is 0.067% which means the interest you’d earn on your €30,000 over a 12-month period is €20.10.

The Central Bank has forecasted that the inflation rate for Ireland would average 2% for 2024, which means that’s the net return if you want your money to hold its value.

So, you need your €30,000 to generate €600 in interest and even at that you’re still only at breakeven.

Which means if you leave your money where it is, it will reduce in value by €579.90 and whilst it may still say €30,000 in your account next year, it will have a reduced purchasing power equivalent to €29,420.10.

But that’s assuming you don’t use it to buy a property.

Anyway, I had a look at what accounts are available where you have immediate access to funds, the capital is 100% guaranteed and the interest rate is good, and the best I could find were two accounts, the first was with a Swedish Bank named, Nordax Bank.

They are offering a gross return of 3.05% on monies where there is no specified term i.e. you have immediate access to your money.

So, if you deposited €30,000 with them and you didn’t use the money over 12 months and the rate stayed the same, you’d earn net c. €612 in interest. Which means your money is at least holding its value which is so important.

And rather than earn €20.10 in interest with your current bank, you can multiply that by 30.44 times by moving your account to Nordax Bank.

The second account is with an Italian Bank named, BFF Bank.

They are offering a gross return 3.50% fixed for three months. And this might not suit you given that you are locking your money away for 90 days, but I thought with the term being so short, it might be something that you’d be interested in.

Both accounts are legally protected by the Swedish and Italian Deposit Guarantee Scheme up to a maximum amount of €100,000 per depositor and bank.

And just a quick word on the guarantee scheme.

Within the EU, all depositors are covered equally by the respective national deposit guarantee scheme of the country where the bank is located, regardless of their nationality or country of residence. Which means your money has the same protection as it has in Ireland throughout the entire EU.

And to put your mind at ease, just suppose one of these banks fails in Sweden or Italy or wherever in the EU, under Article 8(1) of a directive 2014/49/EU, it states that as of January 1, 2024 the maximum legal time allowed for reimbursement i.e. the period between the determination by a competent administrative authority that a case is eligible for compensation by the Deposit Guarantee Scheme and the time when the funds are reimbursed, will be seven business days.

Have a look at these accounts yourself and you can easily set one up with either bank I’ve mentioned using a platform like raisin.ie and if you do, you’ll see the process is not a difficult one.

Question
Liam, I’m from India but living and working in Ireland for the past five years. I would like to buy a property in Ireland. I’m a first-time buyer of a house in Ireland but it’s not my first time buying a house because I purchased one in India about 10 years ago. My question is, will banks treat me as a first or second-time buyer?

Answer
After I received your email, I followed up with some banks asking them whether they would consider you a first-time buyer or not and as I had thought, their response was, and I quote ‘they wouldn’t be considered a first-time buyer as they are or were a homeowner already. It doesn’t matter where they own the house but once they’ve owned a house anywhere, they are no longer considered a first-time buyer’.

Question
Liam, my parents have a managed investment fund in place since 2017 and it’s going fine, and they have no plans to do anything with it for the foreseeable future. Someone mentioned to them that after a period of time they will have to pay tax on it whether they like it or not and they are confused and a little anxious about this. Have you any idea if what they have been told is correct or not?

Answer
There is an eight year tax rule which means a disposal of tax is deemed to occur if no withdrawals from an account are made at the end of the eighth year.

And the reason this is in place is to prevent an indefinite or long-term deferral of tax being paid. And the tax I’m referring to is (a) exit tax which is currently 41% and is applied on the growth of the fund only and (b) the return of this tax is made and paid directly by the provider of the managed fund.

So your parents don’t have to do anything, other than asking the company they have the investment with, how much they paid, if they want to find out that is.

As an aside, gains on the sale of, for example, shares which are subject to Capital Gains Tax (CGT), which is currently charged at a rate of 33%, aren’t subject to the eight year rule. Any investment where the growth is taxed at 33% can extend beyond eight years without tax having to be paid on their growth.

Question
Liam, I set up a private pension a number of years ago and the retirement age was set at 65. I’ll reach that age in September, but I’m not ready to do anything with it yet as I plan on working for a couple more years albeit at a reduced pace. Do I have to activate this policy in September?

Answer
The very quick answer is no you don’t. You can extend the maturity date of your pension with Irish Life beyond the age of 65 and you don’t have to take benefits from it until you’re 75. And if you don't need any monies from this fund, I’d recommend that you leave them where they are and let them continue to grow tax free within the fund.

I would suggest you contact the company you have the pension with or your financial adviser and let them know what your intentions are and also perhaps to tell them to continue with the fund you’re currently invested in, assuming you’re happy with it and it meets your risk profile etc.

If you don’t, they’re likely to transfer your money into a cash fund, which is fine, but it will just sit there earning very little if anything. And when you apply their annual management charge which say is 0.60%, your return is likely to be negative and your fund in real terms will go down in value.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie or www.harmonics.ie