Deposit Interests

Blue Steel

We are kind of forced to gamble our hard earned money on (more or less) risky investments because of low interests rates coupled with very high taxes on deposit.

Would it be more beneficial to open a bank account in another european country which offer higher interest rates? There would still be tax on interests here but it wouldn't be DiRT at 41%

Anyone done that?

Peregrinus

Euro interest rates are the same everywhere. You'll only get higher interest rates by converting your money into another currency and depositing that (either in Ireland or abroad). And of course to do that you have to accept a foreign exchange risk which, if your object is to avoid risk, you won't want to do.

But, yes, you can avoid DIRT by depositing your money outside the State. This is perfectly lawful. You have to report the interest earned as income and pay tax on it at your marginal rate, plus USC. If this comes to less than 41%, then it's in your interest to deposit your money outside the State.

Blue Steel

"Livret A" in France is 1% tax free (locally) which would earn me more than my currently 0.75% Irish bank acct. taxed at 41%.

It is difficult to find a comparison list to make an informed choice and when I look for info it's not in English most of the time.

If anyone knows of an interesting rate please chime in.

Peregrinus

You can only deposit a maximum of about 23,000 euros in a "Livret A" account, so the best you can do, given the difference between your bank account interest rate and the Livret A rate, will amount to an extra €57.50 in interest per year - after tax, less than that, if your marginal tax rate plus USC is more than 41%. Whether the relative inconvenience of having your money in France, and of having to file a return accounting for the interest is worth that is a matter for you.

(Also, you would need to check whether non-residents (of France) are permitted to effect Livret A deposits. I don't know the position there.)

Blue Steel

Peregrinus wrote: »

You can only deposit a maximum of about 23,000 euros in a "Livret A" account, so the best you can do, given the difference between your bank account interest rate and the Livret A rate, will amount to an extra €57.50 in interest per year - after tax, less than that, if your marginal tax rate plus USC is more than 41%. Whether the relative inconvenience of having your money in France, and of having to file a return accounting for the interest is worth that is a matter for you.

(Also, you would need to check whether non-residents (of France) are permitted to effect Livret A deposits. I don't know the position there.)

The gain from the example I picked is marginal according to your calculations which seem accurate.

I was wondering if anyone knows of an interesting deposit rate indeed or if we are doomed to choose between gambling our money away (stocks) and let it melt away (inflation + DiRT).

Nody

Around 2% (gross) is about as good as it gets from what I've found (as per other thread); nothing overly surprising really as in more normal times your deposit account will at best net you if lucky 1% or so after inflation etc. If you want to reduce the "gambling" as you put it look for preferential shares / company bonds from major companies; they are relatively expensive these days (way too late to the party) but you can get around 3 to 5% gross usually.

Peregrinus

For obvious reasons, there won't be any hugely different interest rates offered by different euro deposit-takers. The single market was supposed to encourage competition, and money is a highly liquid and transferrable asset that flows easily across borders.

Return on investment is basically a reward for accepting risk, so if your question is do you have to trade off security versus returns, the answer is "yes, and it was ever thus". During a boom or a bubble, people persuade themselves that they can enjoy high real returns without accepting any risk; it always ends in tears.

In general your best strategy is to focus on long term returns when you can (if you're saving for retirement, and that's twenty years ago, you really don't care if your portfolio drops by 10% over 12 months; the long-term return is all that matters) and to minimise risk by diversification across different asset types.

Blue Steel

Peregrinus wrote: »

Return on investment is basically a reward for accepting risk

That explains the low rates (though when you get a loan the rate is more around 10% for you to repay) but the problem is DiRT. This is what forces you to gamble your money away.

I will follow the strategy you layed out (portfolio, ..)

Peregrinus

Blue Steel wrote: »

That explains the low rates (though when you get a loan the rate is more around 10% for you to repay) but the problem is DiRT. This is what forces you to gamble your money away.

No. If your only problem is DIRT, you can go to Newry and deposit your savings (in euro) in a bank there. You don't get the extra 0.25% interest that a Livret A would give you, but it's a hell of a lot more convenient.

Fundamentally, DIRT is only a problem if (a) your marginal income tax rate, plus USC, comes to less than 41%, and (b) you don't qualify for a DIRT exemption.