People who chose equity-based Special Savings Incentive Accounts (SSIAs) rather than safer deposit SSIAs are on target to receive the highest payouts when the accounts mature in 2006 and 2007.
Dismal stock market returns in 2001 and 2002 left many equity SSIAs underwater, with only the Government's 25 per cent bonus on contributions keeping some afloat. However, the subsequent bounce in stock markets means that typical equity SSIAs have now almost caught up with or in some cases overtaken fixed-rate deposit SSIAs, which in turn are surpassing the gains on variable-rate deposits.
Figures from the Bank of Ireland show that SSIA-holders who have been paying the maximum contribution of €254 since May 2001 to the bank's Growth Fund have a balance of €15,322 in their account. People who opted for a fixed-rate deposit are still ahead at €15,414, while those who chose a variable rate have €14,946.
But people who opened their SSIA in November 2001 or April 2002 are currently doing better if they selected the Growth Fund over either the fixed or variable deposits.
Those who left it until the scheme deadline at the end of April 2002 to take out an equity-based SSIA are predicted to enjoy higher returns on their investment.
Bank of Ireland suggests that based on assumed investment growth of 6 per cent per annum, its Growth Fund maximum contribution customers who opened their accounts in May 2001 are on target to receive €20,943, compared with €21,187 if they opened it in November 2001 and €21,335 if they opened it in April 2002.
If the forecast rate of growth turns out to be accurate, people who took out deposit SSIAs at a fixed rate of 4 per cent in May 2001 will do better out of the Government savings scheme than those who started investing SSIA contributions into the Growth Fund at the same time.
However, most people opened SSIAs after the worst of the stock market volatility had passed, and are thus likely to receive higher returns if they hold equity-based SSIAs.
Only 5 per cent of the 1.15 million SSIAs will mature in May 2006, the earliest possible maturity date. Two-thirds of Bank of Ireland's SSIAs will not mature until 2007.
With the European Central Bank's base interest rate having fallen steadily to 2 per cent, where it has remained since June 2003, consumers holding variable-rate deposit SSIAs are likely to do least well out of the scheme, unless there is a sudden spike in interest rates between now and the end of the scheme. Research by Bank of Ireland, which has a 23 per cent market share, suggests that a greater proportion of experienced savers than novice savers chose equity-based SSIAs.
Only 17 per cent of 'novices' took the risk, compared to 30 per cent of experienced savers.
The Bank of Ireland figures show that those who took the risk with equity SSIAs have made higher contributions on average than deposit SSIA customers: €207 compared to €171.
They are also more likely to be paying the maximum €254 into their SSIA, to take full advantage of the Government's €1 for every €4 offer.
The projected returns are gross figures and do not take into account exit tax of 23 per cent, which must be paid on any gains.
For example, the tax on a fixed-rate deposit SSIA on target to make a gross return of €21,076 will be €467 for someone who has contributed the maximum into the account since May 2001, leaving them with a net gain of €20,609.
If the account is closed before the maturity date, savers must pay 23 per cent on both the principal and the interest, effectively wiping out the value of the Government bonus.
This penalty will also apply if SSIA-holders fail to sign and return a form declaring that they have complied with the terms of the scheme at least 90 days before their accounts mature.
SSIA providers should write to their customers in advance of the cut-off date, informing them of their obligation to sign this declaration.
