The National Solidarity Bond, for small and medium sized investors, will pay a 50% gross return over 10 years.
Any money invested is placed directly with the Government – under the management of the National Treasury Management Agency – is “100% secure”, said Finance Minister Brian Lenihan.
The minimum individual investment in the bond is €500, but savers can make regular lodgments of €25 or more. The maximum individual investment is €250,000 or €500,000 from two joint savers. There are no fees, charges or sales commissions.
Investors can withdraw their money at any time without penalty, the minister said. There will also be a return of 15% over five years and 29% over seven years.
Economist John Finn, of Treasury Solutions, said: “The tax-free lump sum aspect makes it attractive in a certain way as while gross returns are lower than available on government gilts, net (after tax) are reasonably attractive.”
No fees or charges on the bond makes it very transparent and “people forget the effect of paying annual management fees and early encashment penalties on other products. They significantly reduce the return”, he said.
For investors, the risk is that Ireland’s credit ratings continue to fall “meaning that the risk increases but return is static. But there will be larger issues if the credit rating falls too much so not a reason for keeping funds out of these deposits”, Mr Finn added.
“I would probably look at it from a five-year timeframe as an initial investment, as 10 years is a very long time to invest, and bear in mind that interest rates are expected to start rising next year.”
The ICTU’s David Begg welcomed the move but said he did not want to see bond investments displace activity in the Government’s capital programme.
Fine Gael TD, Simon Coveney, said the investments should be “ring-fenced for specific infrastructural projects that will guarantee a return on investment”.
“The Government should be investing in infrastructure which will function as a platform for future growth. The problem is that the Government’s approach makes no sense: while attempting to raise more money… the Government is cutting back on infrastructure spending which will actually damage the economy’s growth potential.”
Labour TD Jan O’Sullivan said all revenues raised from the new national solidarity bond should be used for improving the delivery of specific public services or infrastructure projects.