Eating out, drinks, coffees – it seems like everything is cheaper on holidays. A cafe con leche in Alicante? That will set you back about €2. You’ll pay up to €4.80 for the same in Dublin.
Do you know what else is a better deal abroad? Savings rates. Unless you’re visiting banks on your holidays, you might not know just how sunny things are elsewhere. But online banks and banking platforms that give Irish consumers easy access to great savings rates might mean the jig is up.
Put a lump sum in some banks in Portugal, Italy or Sweden right now and you’ll get hundreds more in interest than at home. Think of these banks and platforms as a bit like a travel agent for your money – your savings are spirited away to a hotspot of your choosing where they can have a far better time than at home.
Savings rates in Ireland and Europe do rise and fall, of course, but here’s a snapshot of differences at home and away at the end of January.
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Don’t forget, just like interest earned with Irish banks, you will have to pay tax on interest earned abroad too.
Pump up your savings
If you’re building up a house deposit, home renovation or college fund for example, you might be using an instant access deposit account with your usual bank. You might be adding a little bit to that nest egg every month and taking a bit out if emergencies arise.
The first step, if you know your first home or kitchen extension is at least a year away, is to lock away the lump sum, or even a part of it, in a term deposit savings account where it will earn more interest. And it will also stop you from dipping in.
Take Mary, she’s saving for a house and already has €30,000 on deposit. It’s in an AIB personal demand deposit account with an interest rate of 0.25 per cent. She has a current account and credit card there too. It’s just easier to keep it all in one bank, right?
With AIB, Mary will earn just €75 in interest on her €30,000 in a year. Allow for tax and that’s just €50.
It’s the same rate for EBS Instant Access account holders by the way. And with a Bank of Ireland or PTSB online instant access account, you will earn even less.
Mary can access the money whenever she wants but she knows she doesn’t really need it for another two years.
If she wants a better deal, the first thing she should do is check for better fixed term deposit rates at home. CCPC.ie or Bonkers.ie both have savings account comparison tools.
If Mary puts her €30,000 in a two-year fixed term deposit account with AIB at 3.02 per cent, she’ll earn €1,827 in interest over that two-year term. Dirt reduces the interest earned to €1,224, but it’s still definitely worth the switch.
But could her money earn even more overseas? Using a banking platform like Raisin, she can shop rates in Europe and find out.
Raisin Bank Ireland is a German fintech, best described as an online savings and investment marketplace. Raisin allows customers to access better savings and investment opportunities from more than 400 banks in over 30 countries across Europe.
It’s been offering services in Ireland since 2019, targeting us due to Ireland’s poor interest rates. Savers can register with a valid ID by video call and then transfer the lump sum to Raisin. They, in turn, transfer funds to your chosen foreign bank.
By using the Raisin platform, Mary can search for some of the best rates in Europe. For example, she can get a rate of 3.44 per cent on a two-year fixed term rate with the Italian bank Banca Privata Leasing. Her deposit will be protected by the Italian deposit guarantee scheme up to €100,000 and there is no withholding tax levied on Irish customers.
Mary’s money will earn her €2,100 in interest there, or €1,407 after Dirt tax payable in Ireland. By sending her money on holiday to Italy, Mary will earn €183 more than the best two-year rate in Ireland.
If Mary is nervous about locking her money away for two years, she could look at one-year rates.
For example, the Swedish TF Bank, available through Raisin, offers savers 3.5 per cent interest. Savers are protected by the Swedish deposit guarantee fund up to 1.05 million Swedish krona (about €90,000). The money can’t be accessed during the term.
On a one-year fixed term deposit, Mary’s €30,000 would earn €1,095 gross interest. That’s €734 after Dirt – or €231 more in interest than the best one-year rate available in Ireland at the end of January. When you think of how hard Mary has to save for a house deposit, an extra €231 is not to be sniffed at.
Afraid to commit?
If sending your money away for a year feels a bit scary, especially if you can’t withdraw it, you could send it on a mini-break instead.
Take Dermot. He has saved €30,000 for a home retrofit. He wants instant access to the money in case the builder says he can start early.
Step forward Dutch fintech, Bunq. It’s licensed in the Netherlands, operates in 30 countries and is subject to the same EU rules and protections as Irish banks. Deposits are covered by the Dutch deposit guarantee scheme up to €100,000.
The interest rates aren’t as impressive as some of those available through Raisin, but they are still better than Irish banks. Dermot can make two withdrawals a month without penalty.
If Dermot lodges his €30,000 to a Bunq Easy Savings account at 2.46 per cent, he will earn €738 in interest, or €495 after tax.
Paying tax
In Ireland, Dirt is deducted by your bank – they magic it away to Revenue directly. That doesn’t happen on interest earned abroad, so you will have to file an income tax return.
Ireland has international “exchange of financial information” agreements with more countries than you can shake a stick at. This means Revenue can check who holds bank accounts overseas and whether the holders are paying the requisite tax on the interest.
If you are a self-assessed taxpayer, you should include the interest earned overseas in your usual Form 11 – just like you include the interest earned on Irish savings. If you are a PAYE taxpayer earning interest overseas, you will have to start submitting an annual PAYE income tax return on Revenue.ie using PAYE Services in MyAccount.
This isn’t really any more complicated than booking a flight with a budget airline – so yes, it will take a bit of focus.
If the total amount of your non-PAYE income exceeds €5,000, you’ll have to register as a self-assessed taxpayer and make a return using the Form 11 on ROS.
Withholding tax
When searching for the best rates on platforms like Raisin, you need to be mindful of countries where withholding tax is charged.
For example in Sweden and Italy, non-residents are exempt from withholding tax on interest earned on deposits. That means you must pay tax on the deposit interest in Ireland, but you won’t have to pay another tax to the Swedish or Italian government.
Mary could put her €30,000 on deposit for one year, through Raisin, with Banco Português De Gestão. It offers 3.5 per cent. In Portugal however, there is a withholding tax of 28 per cent.
Ireland has a double taxation agreement with Portugal, as well as many other countries. Our agreement with Portugal for example limits the Portuguese tax on interest to 15 per cent. You pay the balance to the Revenue Commissioners.
Revenue gives the example of deposit interest earnings of €100. The deposit interest tax rate in Ireland is 33 per cent. Take away the Portuguese tax of 15 per cent, as set out under the double taxation agreement, the Irish tax due falls to €18 so that the total tax levied is no more than the 33 per cent headline Dirt tax rate.
To get this reduction in withholding tax in Portugal, you will have to provide a signed “21-RFI” – that’s a Portuguese tax form – which Raisin will provide for you. You will also need to provide a tax residence certificate. You can request this on Revenue.ie.
At least four weeks before your account matures, send the completed forms by post to Raisin which will forward it to Banco Português De Gestão or the relevant partner bank.
Is it worth it?
So is it worth sending your savings to an overseas bank? If the better interest rates don’t motivate you and the tax return and form filling bit doesn’t demotivate you, here’s something else to consider – “super profits” which Minister for Finance Michael McGrath says Irish banks have been enjoying.
Despite record European Central Bank interest rate increases, Irish banks have been sluggish in passing on the benefit to their customers. The interest rates they pay us for our savings are well below the euro zone average.
Irish banks are enjoying “very significant profits”, the Minister said in pre-budget discussions about increasing a levy on banks. They had benefited from taxpayer assistance during the financial crisis and now had profits sheltered from tax due to the massive losses they incurred back then, he argued.
He has extended the term of a bank levy on AIB (including EBS), Bank of Ireland, and Permanent TSB until the end of this year.
Department officials warned banks would just recoup the cost by passing on the pain to consumers through even lower deposit interest rates and higher loan costs. Who knows what Irish banks will do, but one way customers can take back control is to send their savings on a little holiday.
You can contact us at OnTheMoney@irishtimes.com with personal finance questions you would like to see us address. If you missed last week’s newsletter, you can read it here.
