Saving and investing

Savings and deposit accounts

Whether you are saving for a specific goal or just for a rainy day, it is a good idea to save some money on a regular basis.

Many savings accounts give you instant access to your money so you can get at it when you need to. Saving is different to investing which is usually for a longer-term.

Here we explain:

• types of savings accounts
• how they work
• access to your money
• differences between fixed and variable rate
• factors to consider when choosing an account
• information you must be given about deposit accounts

You can also read about other types of savings accounts:

Types of savings accounts

You can choose from a wide range of accounts, depending on how much you want to save and what access you want to your money. Many accounts can be opened with as little as €10 and you can save either regular amounts or lump sums, and sometimes both.

There are no fees and charges with these accounts, which are available from banks and building societies, credit unions and An Post.

How they work

Some accounts offer higher interest rates than others, so shop around for the best return on your money. Interest rates on savings and deposit accounts may be either fixed or variable.

The AER (annual equivalent rate) or CAR (compound annual rate) will help you compare rates on different accounts. The higher the AER or CAR, the more interest you earn, but remember a higher rate may mean you have less access to your money. The following table shows how €1,000 grows at an interest rate of 2.5% CAR.

Inflation happens when prices increase in the economy. You can protect your money being eroded by inflation by looking for saving accounts where the interest rate after tax is greater than the rate of inflation.

How do I get access to my money?

Savings accounts give you access to your money either immediately or by giving notice of withdrawal. You can choose between short, medium and long-term accounts such as:

• a demand account has a variable rate of interest and allows you to withdraw your money immediately if you need it.
• a notice account also has a variable interest rate of interest but you must give notice to withdraw money, say one or more months' notice. In return, you get a better rate of interest.
• a term or fixed-rate account - you get a fixed rate of interest if you leave your money for a set period of time, say one or two years. If you need to withdraw your money earlier, you will usually get less interest.
• guaranteed bonds - these are similar to fixed term, fixed rate accounts but you may need to invest a lump sum of at least €5,000. You get a guaranteed rate of interest provided you do not withdraw your money until the end of the savings term, which is generally between three and five years.
  

The difference between fixed and variable rate

Fixed interest rates stay the same for a set time so you know what return you will get. You will not benefit from any rate rises but you will not lose out if rates fall.

You usually have to tie up your money for a set time to get a particular fixed rate of interest. If you need to withdraw early, or want to switch accounts to get a better rate, you may get less interest than the fixed rate you signed up to.

Variable interest rates can fall or rise when interest rates change. If rates fall, you get less interest on your savings. If rates rise, you get more. Most variable rate accounts allow you to withdraw your money immediately, so you can always move your money quickly if you see a better rate on offer.

You usually have to pay a Government tax (called DIRT or Deposit Interest Retention Tax) on any interest you earn on savings and deposit accounts. If you are over 65, you may be exempt from paying DIRT. You can get more information on the Revenue website.  

Factors to consider when choosing a deposit account

• the interest rate
• access to your money
• are there transaction facilities such as direct debits and standing orders?
• deposit interest retention tax (DIRT)
• is telephone or internet banking available?
• what are the Terms and Conditions of the account, for example:

            - Is there a minimum deposit required to qualify for that rate?

            - Is there a minimum lodgement or withdrawal for regular savings?

            - If the account has a variable rate, is there a guaranteed link to some other rate such as the ECB
              rate?                        

            - Is the deposit for a fixed period? If not, what notice is required to withdraw money?

            - With a fixed-term deposit, what penalties must I pay if I want to take out my savings early?

            - Can I make regular payments such as direct debits or standing orders from the account 
              and is there a charge for these services?   

Information you must be given about deposit accounts

Under the Financial Regulator's Consumer Protection Code (pdf) your bank must give you a statement at least once a year for every account you have with over €20 in it. If you have a term deposit with a term of one year or more, you bank must let you know that it will come to the end of its term at least 10 days beforehand.

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