Irish savers poured some €370 milllion into state savings products in 2015 as interest rates on deposit accounts continued to plummet leading savers to seek out better returns.

While returns on state savings products, such as the national solidarity bond, prize bonds and savings bonds are, like other deposits, less than stellar in the current environment, they are tax free. This means that savers can avoid tax of between 41-45 per cent on any return they may make. The 10-year solidarity bond pays out 2.26 per cent a year for example, while the shorter-term four year product pays an AER of 0.99 per cent.

Figures from the National Treasury Management Agency (NTMA) show that total state savings stood at € 16.75 billion as at end-January 2016, up by €370 million, or 2.3 per cent from December 2014. Money borrowed from consumers via state savings now accounts for 9.2 per cent of the national debt.

Savers continue to struggle to make a return in an environment of falling interest rates. Latest figures from the Central Bank show that new deposit rates fell to just 0.21 per cent at end December, compared with a Euro area average of 0.65 per cent.

Prize bonds

Savers are also turning to prize bonds, which pay out a fixed amount in prizes each week, in an effort to boost their returns. Latest figures show that almost € 200 million poured into prize bonds in the six months from June to December 2015, or €305 million in the full year 2015, bringing the total invested up to a record €2.5 billion as of December 2015. This represents growth of 14 per cent on year end-2014, and means that since 2011, more than €1 billion has flooded into prize bonds.

However, returns offered by prize bonds are also declining, despite the growth in fund assets. The annual prize fund is determined as a percentage rate of the entire fund, but this also moves in line with general market interest rates, and currently stands at 1.25 per cent. This means that as of Septmeber 2015, the prize fund stood at about €30 million a year, paid out in over 403,000 individual prizes. In 2012, some € 46 million was paid out in 438,682 prizes.