asked the Minister for Finance if he will state the considerations which limit the interest rate to 2½ per cent. for lodgments in savings banks.
Ceisteanna—Questions. Oral Answers. - Interest on Savings Banks Deposits.
9.
The principal consideration which limits the rate of interest on Savings Bank deposits to 2½ per cent. is that these deposits are repayable on demand and the investments held against them must, therefore, be quickly realisable. The rate of interest that can be earned on liquid investments is normally less than that yielded by long-term investments which are more subject to variations in capital value.
A further consideration is the desirability of depositors with the Savings Banks having the assurance of a settled rate of interest which will not be affected by market variations but will persist through periods of both cheap and dear money.
The published accounts of the Post Office Saving Bank show that a higher rate could not be paid on deposits unless the earnings from investments were increased. Payment of higher interest on the investments of the Bank in Irish Government securities would necessitate higher charges for Government lending to the Local Loans Fund and other borrowers from the Exchequer which would be undesirable for social and economic reasons.
The rate of 2½ per cent. for Savings Bank deposits repayable on demand compares favourably with the current rate of 1½ per cent. on deposits of similar size with the commercial banks.
The rate of interest and other facilities offered by the Savings Banks are obviously appreciated by the general public, whose support for these institutions has steadily grown.
The exemption from income tax of the first £25 of interest earned on deposits means that a depositor who is fully liable to income tax obtains a return of over 3¾ per cent. on a deposit of up to £1,000.
Saving Banks deposits are not the only savings medium available to small savers. Savings Certificates, which can be cashed on short notice, yield a return of 4? per cent. per annum, free of tax, if held for a six year period. It is also open to everyone to invest in National Loans, since as little as £10 of stock may be applied for. The last Loan offered a flat yield of over 6 per cent. per annum.