Deposit Accounts in Banks
To the man in the street, money is just money. To a banker, there are different types of money. Money can be bought and sold on the market at different prices. And so, as a "wholesaler", the bank will offer different rates for different types. And the bank will also offer a better rate for a larger amount.
Money is differentiated by how liquid it is. Liquid money can be used immediately. Cash is liquid money. So is money in your current account in the bank. Then there are various levels of deposits.
- "Demand deposits" are very liquid - they are payable on demand i.e. they can be withdrawn from the bank without notice. Some forms of demand deposit may have restrictions - up to a specified amount can be withdrawn on demand. Other forms may have a clause reducing the interest rate on funds deposited for less than say 30 days. Interest rates are low - sometimes extremely low. Interest is paid annually. The rate may vary. The bank may not be required to notify the customer individually regarding changes of interest rates - usually the rate is only notified in the national newspapers. An annual statement will be issued by the bank showing the interest rate(s) applied. Interest paid is subject to DIRT (Deposit Interest Retention Tax).
- "Term Deposits" are deposits in which the depositing customer has agreed to leave the funds on deposit for a specified period. The typical period is matched to the typical periods traded on the wholesale market and may be 7-days, 30-days, 90-days, 180 days, or 1,2,3,4,or 5 years. Term deposits carry a higher rate of interest than demand deposits. Frequently, term deposits are rolled over i.e. they are deposited for another term as soon as they mature. It is sometimes possible to "break" the term of a deposit, if money is required in a hurry - but the penalty in terms of lost interest for breaking a term is usually severe. Interest is paid at maturity. Interest paid is subject to DIRT (Deposit Interest Retention Tax).
- "Notice Deposits" are deposits on which the depositing customer does not specify the date of maturity. Instead, he agrees to give a period of advance notice of intention to withdraw. In effect, the notice deposit becomes a term deposit once such notice has been given. Interest payment dates depend upon the terms of the contract between depositor and the bank. Interest paid is subject to DIRT (Deposit Interest Retention Tax).
In normal economic conditions, bank deposits are guaranteed up to a specified limit. Since 20 September 2008, the maximum claim per person is 100% (was 90%) of all deposits held by the financial institution up to a maximum of €100,000 (was €20,000). From 30 September 2008 the Government is providing an unlimited Government guarantee for all deposits and certain debt in certain Irish banks. The banks are:
- Allied Irish Bank
- Bank of Ireland
- Anglo Irish Bank (now part of Irish Bank Resolution Corporation)
- Irish Life and Permanent
- Irish Nationwide Building Society (now part of Irish Bank Resolution Corporation)
- Educational Building Society (now a subsidiary of AIB)
The arrangement may also apply to specific approved subsidiaries of these banks and it applies to Post Office Savings Bank deposits. In Nov 2011 the guarantee arrangement has been extended to 21 December 2012.
Deposit Interest Retention Tax (DIRT)
Financial Institutions are obliged to deduct a tax called Deposit Interest Retention Tax (DIRT) at a rate of 27% (from January 2011) from interest paid or credited to deposit accounts of Irish residents which are denominated in euro.
In the past, banks were obliged to make returns to the revenue commissioners of any significant amounts of interest paid, and the depositor was liable to income tax on such income. Nowadays, no such return is made, and DIRT at 27% is regarded as satisfying the tax liability in full for individuals. Companies may offset DIRT against their liability for Corporation tax.
The following can claim a refund of DIRT. Refunds are claimed from the Revenue Commissioners by submitting form 54D and certificates of interest paid. Click here to obtain form 54D.
- individuals aged 65 years and over, subject to certain conditions
- permanently incapacitated individuals may apply for a refund of DIRT
- individuals whose income is below the relevant exemption limit