Irish banks are set to come under intense pressure to improve their deposit rates following the move by Dutch online bank Bunq to offer an on-demand rate that is 10 times better than the most competitive instant access rates available to many Irish savers.
Bunq is now offering 2.46 per cent interest on Irish users’ savings with the rate applying to all accounts.
The fintech has been aggressively chasing market share in Ireland in recent months and is increasingly focused on the €150 billion household savings on deposit with Irish banks.
Irish banks have lagged behind those operating across the wider euro zone in passing on ECB rate hikes to households with overnight — or on-demand — deposit accounts, according to a Central Bank paper published in September.
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The ECB has raised its deposit rate from minus 0.5 per cent to 3.75 per cent since the middle of last year amid a fight against inflation.
While the hawkish monetary policy from the ECB has had a negative impact on borrowers — particularly tracker mortgage holders — it should have offered an opportunity to savers to maximise their returns.
However the Central Bank analysis, which looked at data running to the end of June, noted that little by way of benefit had been passed on to that cohort.
And even when the Republic’s three main banks did announce deposit rate increases after the data was compiled, the focus was on fixed rates.
The three are now offering rates of up to 3 per cent for fixed-term deposits but in the region of 94 per cent of the €151.3 billion of Irish household savings at the end of June were in overnight deposit accounts.
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They include current accounts, earning an average of 0.07 per cent of annual interest.
The best instant rate on the table for Irish saves is offered by AIB. Its Personal Demand Deposit account pays 0.25 per cent or nearly 10 times less interest than the new Bunq rate that is available.
The personal finance website Moneysherpa.ie noted that €10,000 on deposit with the fintech over three years will earn €462 more, after tax, than if it is put on deposit with one of the pillar banks.
“This new rate challenges the Irish banks who have been getting away with paying savers interest rates well below the European average,” said Mark Coen of MoneySherpa.
“Unless they significantly improve their instant savings rates, we can expect a big movement of deposits away from Irish banks,” he suggested.
He pointed out that the new rate was a “great example of competition working effectively across the EU and delivering real choice for the Irish consumer”.
Bunq entered the Irish market last year, offering three current account options, starting at €2.99 a month for its “Easy Bank” option, increasing to €17.99 for its Easy Green option.
Deposits on a Bunq account are automatically protected up to €100,000 by the Dutch Deposit Guarantee Scheme.
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