Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.

Savings

I have been investing in a monthly PIP for the last number of months. However, as we all know, the Government is bringing out this new savings scheme pretty soon. My question is whether:

a) It is worthwhile to keep investing in the PIP and start investing in the Government scheme as well? Or,

b) Should I should stop investing in the PIP (e.g., close it) and channel the PIP money into the Government scheme, together with whatever else I put in?

Mr G., e-mail

I expect there will be a raft of queries in the coming months on the precise nature of the Government's special saving incentive scheme. When it comes to the technical details of the scheme, precise answers are possible; with the sort of question Mr G poses, it is more difficult.

There does seem to be consensus that the new scheme - yet to be formally approved by the Oireachtas - is a generous scheme for savers, even if there are doubts about whether it will achieve what the Government wants, doubts this question brings into focus.

It is also true that some of the gloss has gone off personal investment plans (PIPs) with the current market crunch. However, before determining whether to close down one savings vehicle to invest in another, you will have to weigh the costs.

Remember, PIPs are medium-term investment products designed for a minimum of five years, in general. You will have to gauge the effect of early closure on the return you will receive from the PIP and check to see if such early closure could leave you facing additional charges. All this information should be in the contract you signed when you opened the PIP.

You then need to assess the type of product in which you would invest under the Government scheme. These fall into two categories:

a) deposit accounts - either fixed or variable interest;

b) unitised investments.

If you opt for a deposit-type fund - and remember you will have only one bite at this cherry - the returns may well be lower than your existing PIP. Equally, depending on market performance in the coming years, they could be higher.

If you opt for a unitised fund, you could well be looking at another PIP, albeit with Government help to boost your fund.

It is impossible to say in the absolute what is your best approach. Of course, you could always do what the Government intends and open the new savings account while continuing with your existing investments. Certainly, if you are clear of debt and can afford to do so, that would be the best policy, on the face of it.

Debts and savings

My husband and I have just pooled all our loans together into one overall loan. We got the money (totalling £26,800) to repay all our individual loans via our mortgage at First Active, so that our new repayments are just £211 per month, (excluding our present mortgage payments) over 22 years, (at 6.95 per cent).

This is extremely beneficial to us, as we had been paying a colossal £675 per month, with individual loans. However, the individual loan basis would have meant clearing the loans much quicker, which is what we would like to do with the £26,800.

We could easily repay a total of £500 per month in addition to our existing mortgage, but we wondered if we might be better off putting these additional monies into the new savings policy introduced by the Government recently, that will commence on May 1st? Could we then pay back this money in five years' time, along with having some left over?

Ms P.M., Dublin

I am rather disturbed by your letter, although you will probably be rather happy with the answer. As it happens, you probably will be better off investing in the Government savings scheme than paying extra amounts off your rolled-up loans under the remortgage arrangement. After all, the Government is giving you one quarter of your investment before any other investment return and this will exceed the interest accruing on your outstanding loans.

You say you can, between you, easily afford payments of £500 over and above your existing mortgage. Leaving aside the £211 you are paying into the rolled-up loans, you have £289 a month available. Each of you is entitled to invest up to £200 a month over five years in the new scheme.

Remember, whatever monthly amount you start investing at the outset is the sum you will have to put by each month for the first year. If, for example, you will struggle to pay the combined £289 every month for the first year - maybe due to the Christmas squeeze or holiday costs - adjust your initial payments accordingly. After year one - from May 2002 - you will be able to alter payments up or down.

Provided you are not restricted in a fixed rate or some similar arrangement, there seems no reason why you could not use some of the released savings in five years' time to reduce your debt with First Active.

Now back to my concern. It seems odd that a financial institution would encourage you to roll up your debts and seek a payment of £211 a month over 22 years when, by your own account, you can "easily afford" to pay £500. As you say, rolling up loans may reduce payments but, because the repayments are spread over a far longer period, the borrower generally ends up paying more money back on the loan than they would have under the original arrangement.

If you could "easily afford" to pay £500, that is how the roll-up should have been structured to allow you to clear your debts as soon as possible without putting you under the financial strain you were suffering when paying back £695 a month.

As it happens, with the arrival of the Government savings scheme, you may benefit. Depending on when the remortgage was arranged, its arrival may or may not have been known. Even if it was, it sounds odd of the institution to prolong your indebtedness to accommodate your investing in such a scheme. After all, there is no guarantee you will use the money is five years' time to pay off some of your remortgaged debts.