DIRT Calculation

ajmull

DIRT was increased from 23% to 25% on 8/4/2009. My DIRT for Interest over the full year 2009 was all calculated at 25%. Surely it should have been calculated at the lower rate of 25% up to 7/4 and thereafter at 25%. The bank says the interest is paid yearly and calculated at the rate obtaining at the end of the year. What do you think of this? The Govt. getting 2% more than they should for over 3 months or the bank holding onto the difference??

NUTLEY BOY

I am wondering the same thing.

I queried this with AN POST. They said that they add interest at the end of the year and applied the DIRT rate applicable then.

What I don't see is how this stands up. The interest I earned was accrued over the course of a year. If interest rates rose dramatically in December would they pay that higher rate for the entire year ? I think not !! I suspect that someone is being lazy.

Formal shorts

ajmull wrote: »

DIRT was increased from 23% to 25% on 8/4/2009. My DIRT for Interest over the full year 2009 was all calculated at 25%. Surely it should have been calculated at the lower rate of 25% up to 7/4 and thereafter at 25%. The bank says the interest is paid yearly and calculated at the rate obtaining at the end of the year. What do you think of this? The Govt. getting 2% more than they should for over 3 months or the bank holding onto the difference??

If the account was a fixed rate savings account, the interest is effectively credited at the end of the term and you are subject to the prevailing rate of DIRT at that time.

NUTLEY BOY wrote:

What I don't see is how this stands up. The interest I earned was accrued over the course of a year. If interest rates rose dramatically in December would they pay that higher rate for the entire year ? I think not !! I suspect that someone is being lazy.

Yes, you would pay the prevailing rate of DIRT for the year if the interest rate was fixed.

Doesn't sound very fair, but that's how it's done. It's not something decided by the bank.

ajmull

So in case of future increases in DIRT withdraw the capital and interest on the last day of the old rate and deposit it again on the next day?

ajmull

Formal shorts wrote: »

If the account was a fixed rate savings account, the interest is effectively credited at the end of the term and you are subject to the prevailing rate of DIRT at that time.

Just to clarify - you mention "fixed rate" savings account. The account was actually a NR On-Line deposit account with variable rates of interest. Does this make any difference?

Formal shorts

It depends on how they apply their interest, but in most cases yes it should make a difference. A variable rate of interest generally means interest is calculated daily, and as such DIRT should be withheld daily. This should mean you pay DIRT in proportion to the time that the rate changes.

dotsman

Formal shorts wrote: »

It depends on how they apply their interest, but in most cases yes it should make a difference. A variable rate of interest generally means interest is calculated daily, and as such DIRT should be withheld daily. This should mean you pay DIRT in proportion to the time that the rate changes.

Afraid not. In most (if not all) cases, the manner in with interest is applied is: "interest is calculated daily and applied quarterly/annually etc"

DIRT is not part of interest calculations. It has nothing to do with it. DIRT is a tax charged as interest is applied. So, the current DIRT rate is charged on whatever interest is being applied, at the time the interest is being applied.

Changes in interest rates are reflected in the daily calculation, DIRT is not. The banks are not trying to pull fast one.*

*The government is;)

NUTLEY BOY

Thanks for that information.