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How do I get the best return on my savings? Thumbnail

How do I get the best return on my savings?


Please note that this analysis pre-dates the recent reduction in State Savings rates and needs to be updated to reflect the new rates, but the principles still hold good,

We strongly advocate that longer-term (5 years+) investment should only be arranged via pensions and stock-market linked investment accounts to provide the potential for real growth above inflation. We also generally recommend investing in global capital markets rather than a rental property.

However, for savings with terms under 5 years we do not recommend investing in the Stock market due to the inherent short-term volatility.

Therefore, savings that represent your emergency fund or that are specifically required to meet a planned expenditure in less than 5 years should be held on deposit with the balance invested in a globally diversified portfolio.

The following analysis seeks to find the optimum structure for holding cash savings for different investment terms. Although we don't generally recommend Prize Bonds, State Savings have some attractive characteristics which apply even if the certificates are partially encashed before maturity.

Analysis of State Savings Early Access Terms

                                                                                                                                                                         Number of complete years 

Source: NTMA State Savings, analysis by www.globalwealth.ie

We can see that for terms of up to 1 Year the State Savings Deposit Account offers a net of DIRT return of 0.099%pa currently and does not suffer from the inherent limitation of the €100,000 bank deposit guarantee.

7 days’ notice is required for withdrawals of more than €3,000. Maximum holding €250,000 per individual.

The State Saving Deposit account is suitable for larger very short-term holdings joint accounts up to €500,000 e.g. a proposed house purchase.

For terms of between 2 to 3 years the 3 Year State Savings Certificates (issue 17) offer the best return even in the event of early encashment compared to the alternatives available. Note that the returns from Savings Certificates are exempt from DIRT (even in the event of early encashment) and therefore will generally provide superior returns to other bank deposits. The maximum investment is €120,000 per person per issue.

The 4-year certificate (issue 6) offers superior returns for a term of 4 years and the 5-year certificate (issue 22) is the best option for a 5-year term. Again, the maximum investment is €120,000 per person per issue.

Note that the 10-year Bond does not offer the best encashment terms until 8 years have been completed. Given that over this time-frame equity investment is likely to be more suitable and appropriate, we do not believe that the 10-year bond is worth taking out.



For every €100,000 that you currently hold in a typical bank deposit account, you will add around €92.30pa by using the State Savings Deposit account instead.

Even on the 1 year plus early surrender terms, the 3-year State Savings certificate adds a further €200.60 per €100,000 compared to the State Savings Deposit Account.

If you can get to 4 years you are adding an annual €397.30 per €100,000.

Finally, at 5 years the additional interest is €881.60 per €100,000 per annum

This vividly illustrates the benefits of longer-term investment compared to demand deposits.

It also provides savers with extremely valuable short-term flexibility and ensures that a substantial part of their savings can be committed to longer term Stock market-based investments without having to be concerned about short-term volatility.


Case Study

Mary and Joe have €500,000 with their high street bank and are currently earning just €33.50 pa in interest on this net of Deposit Interest Retention Tax (DIRT).

We discussed their requirements and they agreed that they really only needed to keep 10% immediately available with a further 10% available as an emergency fund. We therefore restructured their savings as follows:



Interest Rate

Annual Interest


State savings Deposit




7 days’ notice

3 Year State Savings




Interest is reduced on early encashment

4 Year State Savings




Interest is reduced on early encashment

5 Year State Savings




Interest is reduced on early encashment

Investment Portfolio




Capital at risk








We can see that from this approach there is a substantial improvement in the interest earned and Mary and Joe are retaining easy access to 20% of their savings freeing up the potential for higher returns from an investment portfolio for the remainder.

For education and illustrative purposes only. Not to be construed as investment advice.