Super Saving Case Study Piggy Bank versus Savings Account
Lucy was thinking of saving €1 a day from the age of 13 to 55. She did the same calculations to see how much her savings would grow over the following 42 years. If Lucy just saved her money at home
using a piggy bank, over 42 years she wouldn’t earn any interest and would save:
€15,330 (€1 X 365 days X 42 years)
If Lucy saved her money in a savings account earning AER compound interest of 4% AER over 42 years she would save:
€39,790
This is €24,460 extra compared to simply putting the money in a piggy bank!
Smart Saving Tip Having a savings account makes sense. By earning compound interest, you grow your money. You are also likely to spend less when your money is in a financial institution rather than in your pocket!
(c) How much tax will need to be paid? Deposit Interest Retention Tax (DIRT) is automatically deducted from all interest paid on bank, building society and credit union savings accounts. It decreases the real rate of interest received on the savings.
Example of the effect of DIRT Savings
Interest earned at 10% (i.e. 10% of €1000) Less 30% DIRT (i.e. 30% of €100) Actual Interest received
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€1,000 €100 - €30 €70
Tax is also paid on other types of investments: Profits earned from investments in property are subject to Capital Gains Tax.
Income tax must be paid on dividends earned from shares.
(d) How easy will it be to get my money back? Instant access savings accounts tend to pay the least interest. Notice and fixed-term savings accounts can pay higher interest rates. However, you should not put money into savings accounts with time limits if you think that you may need to withdraw the money early.
