1. CHAPTER 12 PERSONAL SAVINGS AND CREDIT PURCHASING

2. 2 R. Delaney Saving and borrowing Saving schemes and loan schemes are offered by: Commercial banks (see last chapter) Building Societies — Building societies are financial institutions owned by their members. They were originally established to provide mortgages. Credit Unions — A credit union is a co-operative owned by a group of savers and borrowers who have something in common. An Post — An Post is a limited company, owned by the government, that offers various saving schemes.

3. 3 R. Delaney Saving and Investing In every day conversation little distinction is made between saving and investment even though saving means not spending some of your income and investing means spending on capital goods. We are concerned with why people save and the different saving schemes

4. 4 R. Delaney Reasons people save 1.To purchase some expensive item in the future 2.For thrift purposes 3.To earn interest 4.For precautionary purposes 5.To provide for children’s education 6.To provide for retirement 7.To earn a credit rating for possible future borrowings

5. 5 R. Delaney Saving schemes operated by banks and building societies Deposit accounts which can be: Demand deposit accounts where money can be withdrawn at any time from the bank itself or through ATMs OR Term / Time deposit accounts where money can only be withdrawn by giving a minimum amount of notice. Money can’t be withdrawn through ATMS. Interest is earned on the money in these accounts. This is subject to Deposit Interest Retention Tax (DIRT).

6. 6 R. Delaney DIRT reduces real interest rate EXAMPLE OF THE EFFECT OF DIRT 3.75%True rate of interest received (187.50 / 5,000 X 100) €187.50Interest received €62.50Less 25% DIRT (i.e. 25% of €250) €250Interest earned at 5% p.a. €5,000Deposit

7. 7 R. Delaney Saving schemes operated by Credit Unions and An Post Credit unions 1.Deposit accounts 2.Regular share accounts: which receive a share of the profits earned by the credit union. DIRT is not payable on these accounts. An Post 1.Savings Certificates 2.Savings Bonds 3.Instalment Saving Schemes

8. 8 R. Delaney When choosing a saving or investment scheme consider: 1.Safety: are the deposits guaranteed? 2.Interest rates: shop around for best rates 3.Liquidity: is notice of withdrawal required? 4.Convenience: is your money accessible via ATMs? 5.Secondary benefits: Are there any bonus benefits if you leave your money on deposit for a stated period of time? 6.Tax: Is the interest subject to DIRT?

9. 9 R. Delaney Sources of Borrowings or Deferred Payments 1.Bank overdrafts 2.Term loans 3.Mortgages 4.Hire Purchase 5.Leasing 6.Credit and store cards 7.Money lenders