 While a “high” return may be stretching it compared to more volatile high-risk assets, the return available for low-risk Irish Government bonds has certainly increased substantially in recent years. This is especially true for the net of tax return, compared to alternatives. As we know, thanks to the numerous media reports condemning the billions that Irish people have accumulated in saving accounts, €175 billion to be exact, a significant amount of wealth is held in saving accounts earning little to nothing. With inflation now trending above 3%, the real value of these savings is being eroded year on year. For example, if someone invested €100,000 in 2026, in five years a 3% inflation rate would reduce the real value by 15% to c. €85,000 and after ten years it would have fallen by 25% to c. €75,000. While it makes sense to hold a reserve or rainy-day fund as part of most financial plans, the majority of people do not understand the real cost to their wealth overtime. Now, with increasing bond yields there is a viable alternative to holding money in cash that is worth considering. What Is A Bond? A bond is a loan. When you buy an Irish Government Bond, you are lending money to the Irish State, and the State agrees to repay a fixed amount, called the face value, on a fixed date. During the term to maturity, it pays a fixed annual interest payment called the coupon. The bonds trade on the Euronext Dublin Exchange and most Irish Government Bonds in issue today were sold when interest rates were near zero and carry small coupons. However, as interest rates have risen significantly in recent years, existing bonds can now be purchased below their initial face value. For example, if you buy a bond for 84 and hold to maturity, the State repays 100. That capital gain accounts for most of the return. Tax Your return arrives in two distinct ways and Revenue treats each differently. The coupon is subject to income tax at the investors marginal rate of tax, which for a higher-rate taxpayer is around 52% once income tax, USC and PRSI are accounted for. However, Capital gains on Irish Government Bonds are currently exempt from Capital Gains Tax (CGT) for Irish residents. So, if the main element of the return from these bonds is a capital gain, only a small amount of tax is payable on the coupon. For example, a bond maturing in 2030 has a gross yield to maturity (return) of 3.09% and only 0.15% of that return is tax, the rest is currently a tax-free return. Current Yields The table below outlines current bond yields as of 2 September 2026. The deposit needed to match the same return is detailed in the last column and highlights how attractive bond yields have become relative to the return available from deposits.  Returns shown are gross of charges payable to a stockbroker and to Distinct Wealth Management. Return after tax assumes a higher-rate individual taxpayer, with capital growth exempt from Capital Gains Tax and coupon income taxed at a marginal rate of 52%. The final column is the gross rate a deposit account would need to pay to leave the same amount after Deposit Interest Retention Tax at 33%. Prices and yields change daily. Security and Liquidity
Security is always a key consideration when investing your hard-earned money and it is comforting to know that bond repayments is a direct obligation of the Irish State, arranged through the National Treasury Management Agency, for the full amount you hold and with no upper limit. So, unlike a deposit there is no €100,000 maximum guarantee. The bonds are also liquid, with daily access unlike term deposits. However, if the bond is sold before maturity, you get the market price, which moves with interest rates and may be less or more than you paid. If you hold to maturity the return is guaranteed because the State repays the bond at face value. Shorter bonds fluctuate less than longer term bonds, hence the higher return for the longer dated bonds in the table above. Distinct View We believe cash should still form a part of a client’s financial plan, especially for short term requirements of 12-18 months and for ease of access at unexpected short notice. For longer investment terms we still believe equities provide the best potential return once you are investing for 7 years or more. However, there is now a viable liquid investment option for medium terms that will give you a reasonable return over 2-6 years. In our experience some clients may wish to consider it in the following scenarios:
If you would like to discuss the above in more detail, please email [email protected] or call 01 5392601. WARNING: The value of your investment may go down as well as up. WARNING: The content of this article does not constitute a personal recommendation or investment advice. Distinct Wealth are not tax advisers. You should seek independent tax advice in relation to your own circumstances. WARNING: Bond prices and yields change daily, and you may receive back less than you invested if a bond is sold before maturity. Prices are Euronext Dublin closing levels as of 2 September 2026. Figures are illustrative estimates based on the assumptions stated and are not a reliable guide to future performance. WARNING: Tax treatment depends on individual circumstances and may change. The Capital Gains Tax exemption applies to Irish resident investors under current Revenue rules and practice. WARNING: This article is for educational purposes. Bond transactions may not be suitable or appropriate for all investors, and specific advice should be sought before investing, based on the individual circumstances of the investor. Distinct Wealth is regulated by the Central Bank of Ireland. Comments are closed.
|