National Solidarity Bond - is it any good?

Details of the National Solidarity Bond were announced last week, the idea having first surfaced in the most recent Budget speech. The idea is that you invest an amount of money from €500 to €250,000 for a period of ten years, after which you get a State-guaranteed return of 50%, which is fixed from the outset.

In further detail, the return is 50% Gross over 10 years (AER 4.14%) consisting of 10% in 10 annual payments of 1% which are subject to DIRT at the prevailing rate (currently 25%) plus a 40% Tax free lump sum at the end of 10 years.

The net after tax return is 47.5% (AER 3.96%) assuming DIRT remains at 25%. Minimum investment is €500. Maximum individual investment is €250,000 (or €500,000 from 2 joint applicants or €750,000 from 3 joint applicants). If you do not have €500 to invest there is a facility to save through regular lodgements. You can access your money at any time by giving 7 days notice. There are no fees, charges or sales commissions.

The money will be used by the Irish Government. As the blurb says - "The Government of Ireland wants to make it easy for residents of Ireland to help to fund the Government’s capital investment programme, develop important infrastructure, stimulate economic recovery and create employment."

Looking at it purely as an investment option, I'd say it should only be considered by someone who is 100% sure they do not need access to their savings earlier than ten years as otherwise the rate of return will be just 0.75% per year after DIRT tax, which is paltry. If you are going to leave it for the 10 years, the return of 4.14% per year, before DIRT tax, isn't going to make you rich but it may be useful as a safe haven alternative to bank deposits for some long-term cash. This of course assumes you have confidence that a guarantee by the Irish State is a safe haven.

It is irritating that the 1% levy on other savings & investment products doesn't apply to this bond, which is an example of the Government using the tax laws to suit their own causes.

Further details available here.

(Note: This product is not available via brokers. The above article should be considered a personal opinion and not professional advice.)

Pensions - you can go your own way

I was at a Standard Life presentation today and one of the speakers noted that since Standard Life launched their Synergy platform in 2006, they now have over 1,200 Stocktade accounts containing an average of €45,000 each.

Stocktrade is Standard Life's chosen stockbroker for their self-directed pension contract. Using the Standard Life / Stocktrade platform, we can set up pension plans for clients allowing them to mix their fund between managed funds, cash deposits, direct property (which they choose) or shares, ETFs and bonds of their own choosing.

Interesting that Irish pension clients have chosen to entrust €54 million via Stocktrade into shares, ETFs and bonds of their own choosing. Far from being a niche product for the High Net Worth customer, self-directed pension funds are now coming into their own as something open to everyone - Personal Pensions and Buy Out Bonds included.

Government-backed investing in Ireland Inc.

For those of you with a low tolerance for taking risks with your money, the options for investing your cash are thin on the ground. You can leave your money on deposit, but with interest rates falling, so are your anticipated returns. There are a handful of Tracker Bonds out there but you need to make sure you understand the participation rate, what's being tracked and the final year averaging clauses before parting with your hard-earned.

A new option has surfaced recently - investing in Government Bond funds. Such funds effectively loan money to the Irish Government on pre-arranged terms, i.e. at a fixed rate. As long as the Irish Government can honour their commitment, your money is secure.

Eagle Star were first to market with two such funds - the Irish Government Bond 2012 fund, which should return 12.1% on 5/3/2012 and the Irish Government Bond 2016 fund which should return 38.1% on 18/4/2016.

New Ireland followed with the 2014 Government Bond Fund paying a 4% coupon and maturing on 15 Jan 2014 and the 2016 Government Bond fund paying a 4.6% coupon and maturing on 18 April 2016.

All quoted returns are before deduction of charges and tax (if applicable) so make sure you buy from a broker who offers competitive deals on charges. (Like us!)

Investments can be made with lump sums or by way of a lump sum pension contribution or Approved Retirement Fund.