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17 May 2022

Making Cents: More of your questions answered

 Making Cents: More of your questions answered

Have a quick question for Liam? Email him at liam@harmonics.ie

THIS week, I’d like to share with you, three questions I received recently from readers and the answers I gave to each.

Question
Liam, can a Bank in any instance withdraw money from my account without my permission or instruction?

Answer

Yes, they can but only in a very specific set of circumstances.

There is a term known as set off or sometimes it’s referred to as having the right to offset and it’s a condition where a bank can take money from any savings account you have with them and transfer those funds into a loan account or an overdraft if you happen to be in arrears on said accounts.

And to be absolutely sure, I directed your question to a Bank.

I asked them what I thought was a fairly simple question i.e. Can a Bank take money from an individual’s savings account without their consent?

And I was back and forth with them I think about four times via email because they just weren’t answering my question.

I just wanted a simple, yes or no.

I’m not sure whether the person I was interacting with, knew or not, so I said to them very politely that if they didn’t know the answer that was fine, absolutely no issues, just direct me to someone who does.

But no, they kept on telling me about how a bank would work with the individual and come to an arrangement if they were in arrears.

And you know that’s fine and the least I’d expect them to do, but I still wanted to know, could they take money out of someone’s account without their consent and direct the funds into a loan account that was in arrears.

And still nothing.

So, I decided to try find out the answer myself because I was just clearly wasting my time, so I found a copy of the terms and conditions of a term loan from the Bank in question and there it was, waving up at me on the page, stating:
“The Bank may at any time with or without notice, combine or consolidate some or all of your accounts with the Bank in any currency or location including any current, deposit or other form of account, accounts payable on demand and not payable on demand and any account in your sole name or in the names of you and another or others, set off or transfer any sum standing to the credit of any such account in full or partial payment of any amount you owe the bank. This clause is in addition to and does not amend or qualify any other present or future right of the Bank to combine or set off any of your accounts with it.”

I’m sure it would be a last resort for the Bank to apply this condition because I’ve no doubt they would exhaust every last avenue to come to some agreement, without having to push the nuclear, set off option.

When I received this question, and when I began my interaction with the Bank, I was never asking them a question about will the bank take money from someone’s account without their permission, I was only ever asking can they, and the answer is, yes, they can.


Question
I am getting married in a few months and wonder what I could/should think of in relation to this, and especially where it would give me a financial advantage? I thought myself about getting a prenuptial agreement. What do you think?


Answer
You can certainly arrange a ‘pre-nup’ but they have no basis in law in Ireland.

And because of this, they are not strictly binding. This means that if you have a ‘pre-nup’ agreement in place and your marriage breaks down and you appear before the courts, the judge is not bound by the terms of the pre-nuptial agreement you both wrote and agreed to.

Having said that, what I’ve read and what I’ve been told, is that the courts will look at the issue of intention i.e. what were both of you trying to achieve and or protect when you signed the ‘pre-nup’.

And if the agreement makes proper provision for each party, it is more likely to be persuasive with the judge i.e. in situations where one person is likely to inherit a significant asset or business or part thereof, it will guide the judge in the divorce or judicial separation on what the parties’ intentions were from the outset, and how the assets will be divided in divorce.

The judge will also be influenced by the situation you find yourselves in at the time of divorce i.e. do you now have kids and who will have custody of them, what are their costs going to be, is one of you suffering an illness or from ill health and so on.

And importantly, you have to show that there was full disclosure at the time of signing the ‘pre-nup’ i.e. you both knew everything about the others finances and what assets they had, and very importantly at the time of signing, you both had obtained legal advice.

Question
Liam, for the next 9 months I'm considering reducing my monthly pension contribution from 11% to 2% in order to fund some short-term home improvement costs. I'm aware that my employer pension contribution will reduce to 2% as well. I am considering this option over taking out a personal loan (€5,000) from the bank. My salary for context is €80,000. Can you advise if this is common approach to fund short term commitments and any important implications I should consider before I go down this path?

Answer
Okay, if you borrow €5,000 at say 6.80% (about the average personal loan rate at the moment from banks) the amount of interest you'd pay back over 9 months is €139.55.

So, that's the cost of those borrowings.

If you forego the loss of the 9% contribution from your employer over those same 9 months that amounts to €5,400 i.e. €80,000 x 9% / 12 x 9 = €5,400.

So, you are giving up €5,400 for the sake of paying €139.55 in interest which makes no sense. In fact, you're giving up more because if you stop your contributions, you're also giving up the tax relief that comes with it.

You'd be contributing the same €5,400 but you're getting tax relief at 40% so it’s only costing you €3,240 where the tax relief is €2,160.

So, not making those contributions for 9 months, you’re leaving behind €7,560 for the sake of a loan of €5,000 which is only costing you €139.55 in interest.

I know the cost of the loan is €571 per month, and the total payback is just €5,139.55 but when you stand that alongside the loss in pension contributions i.e. €12,960 (yours and your employers contributions combined and tax relief on your contributions), it absolutely makes sense to borrow the money and not suspend pension contributions.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie or www.harmonics.ie

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