THE special savings investment accounts (SSIAs) celebrate their second birthday on Thursday. They have proved to be a mixed blessing, depending on which product you settled on and whether you are on the receiving end (us) or the giving end (the government). The running tab for the exchequer is now €45m a month or €540m a year.

Just over 26,000 of the 1,170,208 account holders have cashed in, incurring the 23% tax penalty on the entire fund — the holder’s savings, the government top up and any growth.

Since most of these now defunct funds were held in investment rather than savings accounts, it confirms what many predicted when the scheme was launched in May 2001: that too many people who opted for this type of account were going to lose their nerve at the first sign of market volatility or negative growth.

Five years is too short a time for an investment account to achieve substantial growth, and some of these funds are already reporting considerable losses.

Perhaps it is just as well that they have cut their losses. In my SSIA file, I came across a report prepared on February 28, 2002, by Becketts, which shows that charges will automatically reduce the value of SSIAs by between 1.1% and 3.8% each year.

Even if the account holder were to hang on to such a fund for longer than the five years — as many were advised to do — most analysts are predicting only modest, single-digit growth levels.

The government’s contribution does not apply after five years, but these charges do and, if markets are still down, the charges will hit profits hard.

Anybody who opted for a fixed-rate deposit SSIA in 2001, when the rates were as high as 4.25-4.55%, should be laughing all the way to the bank. Their fund will be worth about €21,800 at the end of the five years, which represents a real annual return of 12.2%.

Even somebody who is only getting 2.75% will end up with a fund worth €20,680 and an annual return of 10.36% if they pay in the maximum amount.

Unfortunately for the 300,000 or so people who took out unitised SSIAs, these funds have again been shown to be unsuitable for short-term investment purposes.

The charges are too high and the underlying funds too volatile to produce satisfactory returns in so short a space of time. Had it not been for the government paying in €1 for every €4 contribution, the loss would have been far greater.

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