Fixed-rate SSIAs likely to be winners

Cautious savers are likely to do the best out of the Government's Special Savings Incentive Scheme, according to a new report.

Savers who took out a fixed-rate Special Savings Incentive Account (SSIA) are on course to receive better returns than those who opted for variable rates or equity SSIAs, the report by actuarial consultants Life Strategies indicates.

People making the average monthly contribution of €158 to a fixed-rate deposit SSIA from April 2002 could be almost €600 better off at maturity than if they had chosen a variable-rate SSIA, it says.

The average SSIA holder contributing €158 a month will accumulate €12,886 under typical fixed-rate deposit products, but just €12,294 under typical variable-rate deposits.

The fixed-rate calculations are based on a rate of 4.25 per cent. while the variable-rate projections assume that a product starting off with a rate of 4 per cent will eventually fall to 0.75 of a percentage point below the European Central Bank (ECB) rate.

Before the scheme closed, SSIA providers promised rates would not fall more than 1 per cent below the ECB rate in order to qualify for the Consumers' Association Savermark standard.

Some promised to match or stay within 0.25 or 0.5 of a percentage point of the ECB rate, however AIB, Bank of Ireland, Permanent TSB and An Post did not improve on the Savermark's minimum standard.

Mr Dermot Corry, director of Life Strategies, said the fact they had issued this guarantee meant it would have been "a little naive" to think that they would stay above the ECB rate.

Most variable-rate SSIAs initially offering a margin of 0.75 of a percentage point above the ECB rate are now paying interest either equal to or just 0.25 of a percentage point above it. The ECB rate has been cut twice since April 2002 and now stands at 2.5 per cent.

Most fixed-rate SSIAs, available at rates between 4 and 4.5 per cent, failed to achieve the Consumers' Association's Savermark because they set minimum contributions in excess of the €12.50 specified by the Government and charged additional penalties for withdrawals.

The association "may have been a little hard" when setting the standard for fixed-rate products, Mr Corry said.

But the restrictions meant fixed-rate SSIAs appealed to more affluent customers.

Despite the poor performance of the stock market over the past year, equity SSIA holders may receive a higher return than variable-rate SSIA holders, with the average investor potentially receiving €12,469 on maturity. But this is based on an assumed growth rate of 6 per cent over the rest of the term, which the report says is "by no means certain".