Regular savings are extremely important to ensure you reach your financial goals. There are many different ways to save through different financial products. A very typical example of this is saving through a deposit account. The advantages of deposit accounts are many allow you to access your funds quite easily. Some deposit accounts you can access immediately; these are called Demand Accounts. Other types of deposit account may insist on a notice period to withdraw funds; these are often referred to as Notice Accounts. The interest on Notice Accounts can be tied which means a penalty can be incurred if withdrawals are made outside the notice period.
The interest applicable to savings accounts can be tiered and there may be a fixed or variable option. Tiered interest options mean that the level of interest payable is linked to the balance in the savings account. Therefore, if the balance is higher more interest will be paid in line with the agreed terms and conditions. The frequency at which interest is credited to the account is also important and this will impact on the overall savings amount and ultimately the return to you. Some interest is applied to the fund as growth whereas other savings accounts will allow the saver to take the interest as a regular income.
Some institutions offer Fixed Term Deposit accounts where funds are placed at a fixed rate of interest and for a fixed period of time. The time the funds are held depends on the terms and conditions of the account but the time could 1 month, 3 months, 6 months or a number of years. Often there is limited access during the fixed term. Investors in this respect need to be sure that they will not require access to the funds during the fixed period. If the saver is unsure whether they will require access during the fixed period, then this type of savings account is not suitable and a Demand Account or a Notice Account with less restrictions on access would be more suitable.
The longer an investor allows the financial institution to hold the funds, the better the return generally speaking. The return on a savings account is calculated by the annual equivalent rate or AER. By using AER as the standard, it allows investors to compare differing savings products, AER annualises the interest payable on the investment. This is very helpful for consumers as many financial institutions credit interest at different frequencies.
Some deposit accounts have a minimum investment and may require that a certain balance is maintained.
Earned interest on deposits are subject to dirt tax at the prevailing rate which is currently 41%. There are circumstances where dirt is exempt, for example, non-resident’s, charities, pension funds and PRSA providers and Approved Retirement Funds (ARFs) providers.
There are a number of state savings schemes which can be very attractive for investors too. All products are subject to specific terms and conditions and the above is general guidance for information purposes only, for further discussion you should speak to one of our advisers.