For years, Irish savers have faced a fairly simple problem: leaving money in the bank is safe, but it may not keep pace with inflation. The Government is now preparing a new Savings and Investment Account. This is is an attempt to encourage more people to move some of their money from deposits into investments.

The issue is significant. Irish households had around €175 billion held in bank deposits at the end of May, while average deposit rates remained very low. At the same time, consumer prices were rising by 3.4% in the year to June. In other words, money sitting in an ordinary account can gradually lose purchasing power even though the balance itself is not falling.

Minister for Finance Simon Harris has been particularly critical of this situation, arguing that Irish savers are getting a poor deal from a combination of low deposit rates and a relatively complicated investment tax system.

RTÉ’s report on the new savings and investment scheme

What is being proposed?

The new account is expected to be announced formally as part of the Budget on 6 October, with accounts potentially becoming available during 2027. The intention is to make investing simpler by allowing individuals to put money into funds investing in shares and other assets, while benefiting from a much simpler tax treatment.

The proposal is based broadly on Sweden’s Investeringssparkonto, or ISK. Rather than paying tax separately on capital gains and other investment income, the account uses an annual tax charge based on the value of the assets above a tax-free threshold.

The Irish proposal is expected to work on a similar principle, although important details – including the annual contribution limit, tax-free threshold, charges and exactly what investments will qualify – have yet to be settled. The Government has indicated that there will be no Capital Gains Tax on gains made within the account.

This could represent a significant change for Irish investors. At present, investment taxation can be complicated, particularly for funds, where the eight-year deemed disposal rule can result in tax becoming payable even when an investment has not actually been sold. That, however, might also be disposed of in the coming Budget.

Will it encourage more investment?

There is certainly a sizeable pool of money that could potentially be moved into investment. Irish households have traditionally been cautious about taking investment risk, with deposits remaining much more popular than shares and investment funds.

Other countries have tried similar schemes with mixed results. Britain has operated Individual Savings Accounts for many years, while Sweden’s ISK has achieved widespread adoption. However, there is evidence that these accounts can simply encourage people to move existing savings rather than save more overall.

That distinction matters. If someone moves €20,000 from a deposit account into an investment account, they have become an investor, but they have not necessarily increased the amount they are saving.

There is also the question of who benefits most. People need spare money before they can invest it. A household struggling to cover mortgage payments, energy bills and unexpected expenses is unlikely to prioritise a share-based investment account, however attractive the tax treatment might be.

Investment is not the same as saving

A deposit account and an investment account serve different purposes. Cash is generally appropriate for money that may be needed in the short term, particularly an emergency fund. Investments are more suitable for money that can remain untouched for a longer period.

Shares can rise considerably over time, but they can also fall. An investment account should therefore not be regarded as a higher-interest savings account. Someone who needs €5,000 to replace a car or deal with an unexpected household expense does not want to discover that their €5,000 investment has temporarily become €4,000.

The proposed account may make investing more straightforward, but it cannot remove investment risk.

The Swedish experience is worth watching

Sweden provides an interesting example because its ISK has been widely adopted. Under the Swedish system, investors do not pay tax on individual capital gains within the account. Instead, taxation is based on a calculated return on the value of the assets. Money can also be withdrawn without a separate tax charge.

However, Sweden’s experience also demonstrates that a tax-efficient investment account does not automatically produce equal participation. People with greater financial knowledge and more confidence around investments are generally more likely to make use of such products.

This means financial education could be just as important as the account itself. If the Government wants ordinary households to become investors, people need to understand compound growth, diversification, investment risk and the difference between short-term saving and long-term investing.

The Irish Times’ coverage of the proposed Savings and Investment Account

The details will matter

The basic idea is relatively straightforward: give Irish households a simpler and potentially more tax-efficient way to invest some of their savings.

The annual contribution limit will be particularly important. If it is set too high, the greatest benefits could flow disproportionately to wealthier households. If it is too low, the account may have little practical impact on those with substantial savings.

Charges will matter too. A tax-efficient investment that carries high annual management or fund fees may not be nearly as attractive as it first appears.

There is also the question of accessibility. If the account is genuinely intended for ordinary savers, it needs to be simple to understand, straightforward to open and inexpensive to operate.

For now, the Government has provided the outline rather than the finished product. The announcement on Budget Day should provide much more clarity.

The new account could be a useful addition to the Irish savings landscape, particularly for people who have money sitting in deposits for the long term. But it is unlikely to solve the wider problem on its own. Better returns are attractive, but they come with investment risk – and the most important decision for any saver will remain the same: what is this money for, and when might I need it?