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Dank White: DIRT-free option the clear winner

Dank White answers your financial questions

I am looking for some advice on the following financial issues facing me:

1) Is the Post Office Savings Bank three-year deposit account with a 10pc DIRT-free interest rate one of the best around or are there better options for placing money on deposit?

2) I have a second property, which was left to me by my mother. I am thinking of letting it. Would I be better off selling it and investing the money a long-term deposit account such the Post Office, which has 20pc over five years DIRT-free?

3) I have car loans and mortgages currently running. Should I clear these loans as I have funds to do so?

Colin

Colin is obviously referring to savings certificates and bonds. Savings certificates pay a cumulative 10pc interest rate if held for three years, while savings bonds will pay out 21pc if held for five-and-a-half years.

That, according to An Post, works out at an average annual interest rate of 3.23pc for savings certificates and 3.53pc for savings bonds.

As interest on savings certificates and bonds is not liable to DIRT, that's the equivalent of a 4.3pc DIRT-paid interest rate for savings certificates and 4.7pc for savings bonds. These interest rates are fixed for the full life of savings certificate or bond if it is held for the full term. If you cash them in early you will receive a slightly lower interest rate.

When the DIRT-free status of savings certificates and bonds is factored in, no other savings product comes within a mule's screech of matching their interest rates. If Colin is prepared to leave his money untouched for either three or five-and-a-half years then this is the way to go. However, Colin must insist on either savings certificates or bonds rather than the savings products offered by An Post's banking subsidiary Postbank, which are subject to DIRT.

The only caveat is that some time over the next two years the European Central Bank is likely to start pushing up eurozone interest rates. In practice this is unlikely to have much impact on the relative attractiveness of savings certificates relative to other savings products, but it should be borne in mind by anyone thinking of putting their money into savings bonds, which run for five-and-a-half years.

Even so, I suspect that Colin would be better off selling his mother's house and putting the proceeds into savings bonds. Before doing so he should check whether or not selling the house would trigger a capital gains tax liability.

Falling

Finally, unless he reckons he might need to access his cash in a hurry, Colin should pay down his borrowings early. With falling prices the real value of loans rises. This makes paying them off early an absolute no-brainer if you can afford to do so.

I have decided to get rid of my credit card, which is with MBNA. When I rang them to pay it off they said I had to pay the €20 Government tax. I paid this last April, thinking it was for a year. Is this right and do I have to pay it?

Brenda

Brenda should stand her ground and refuse to pay. The Government charges stamp duty of €30 per year on credit cards. However, this doesn't cover the calendar year but the 12 months from April 2 to the following April 1. As Brenda already paid the stamp duty last April she shouldn't have to pay it again in January. Somehow I can't help feeling that MBNA are trying it on.