Savers were one of the biggest losers in the October budget. With effect from January 2014 the Deposit Interest Retention Tax (DIRT) rate will rise from 33% to 41%, and from the same date PAYE workers will also have to pay 4 per cent PRSI on their interest income. Therefore most savers can expect to pay an effective rate of tax of up to 45% on the interest earned on their savings, so for example, if you earn €200 in interest on your savings next year you will lose up to€90 of it to tax.
One way to avoid the DIRT hike in the short term is to open an “interest-first deposit account”. With this type of account the bank pays the interest you earn up front and it is subject to DIRT at the current rate. The interest is paid usually within 16 days of opening the account.
If you are considering opening an interest-first deposit account you need to act quickly – most Banks offering these products have a deadline of the 4th December 2013 for opening an account to ensure you receive interest based on the prevailing 2013 DIRT rate of 33%.
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