Irish savers could collectively miss out on returns of around €3.5 billion over the next 12 months because the vast majority have savings in instant-access deposit accounts with interest rates best described as useless.
Now, €3.5 billion is a difficult sum to comprehend so it might be more helpful to say that with current inflation rates, having savings on deposit in an almost zero interest rate current account, rather than a comparatively high interest rate savings account, is costing Irish savers around €10 million per day.
Or to put it another way, Irish savers have collectively missed out on €1,600 in the time it takes you to read this sentence. Ouch.
The reason so many Irish savers are missing out is that of the €150 billion on deposit in this country, some €142 billion of it is in instant-access accounts.
While the average rate for overnight deposits climbed in October to the highest level since November 2016, according to figures published by the Central Bank, it only reached 0.12 per cent.
Savings accounts with an agreed maturity date have seen rates climb higher and now stand at their highest level since the start of 2009.
However, the average rate on these products is still just 2.59 per cent, some distance off the euro zone average of 3.27 per cent and a long way off what they would need for the deposit to actually make savers any money. While inflation has retreated from the highs of 2022, it will still more than wipe out any returns from deposits at these rates.
The frankly scandalously low rates offered to many Irish savers since the ECB started its rate raising programme is one of the reasons Irish banks here have been able to enjoy such enormous profits recently but things might, possibly, be about to turn and Irish banks might not be in for such an easy ride in the months ahead.
Canny savers willing to explore alternative avenues can get rates of 4 per cent from Raisin and Trade Republic, which assist Irish people in lodging cash with more banks across the EU offering more generous rates on savings.
Last week Dutch online bank Bunq started offering an on-demand rate that is 10 times better than the most competitive instant access rates available to many Irish savers. Bunq savers can get 2.46 per cent interest with the rate applying to all accounts.
Bunq has been aggressively chasing market share in Ireland while indigenous banks – sitting on massive customer deposits – have been very slow to move. Deposits on a Bunq account are protected up to €100,000 under the Dutch Deposit Guarantee Scheme.
The context for all this of course is that the ECB has raised its deposit rate from minus 0.5 per cent at the middle of 2022 to an eye-watering 4 per cent in a rapid series of rises. While its aggressive monetary policy has had a negative impact on borrowers – particularly tracker mortgage holders – the stance adopted by the Irish banks means savers have been denied an opportunity to maximise returns on the €150 billion on deposit in this country.
That is not to say there has been zero movement by Irish banks. After being slow to move, all three of the main Irish banks have recently announced deposit rate increases and are now offering rates of up to 3 per cent for fixed-term deposits. That said, even the highest such rate still lags the ECB rate.
AIB’s online saver account now offers a rate of 3 per cent on savings of between €10 to €1,000 per month for 12 months.
The same bank has also increased its fixed-term deposit rates for personal and business customers. Its two-year term deposit account has climbed by one point to 3 per cent while its one-year term deposit has gone up to 2.5 per cent with a 1.5 per cent rate available on its six-month term deposit account.
Bank of Ireland’s SuperSaver accounts also offer a rate of 3 per cent for the first year after which the rate falls to 2 per cent on balances of up to €30,000.
Its MortgageSaver and Regular Saver accounts rates have gone from 1 per cent to 2 per cent, up to a limit of €15,000 and €12,000 respectively with a rate of 0.50 per cent – up from 0.01 per cent – applying to balances above these limits.
The highest PTSB has gone is also 3 per cent for fixed term accounts. The State has also made some moves to benefit savers with the NTMA increasing the interest rates on State Savings products.
State Savings
A three-year savings bond rate has gone from 1 per cent to 4 per cent, while savings certificates which lock savings in for five years offer 9 per cent over that period, up from 5 per cent.
Six-year instalment savings have a rate of 10 per cent, up from 5.5 per cent, while the rate on the 10-year national solidarity bond is 22 per cent up from 16 per cent. That works out at just over 2 per cent a year over the term although it is tax-free.
The NTMA has also increased the prize bond fund on offer to €48 million as it trebled the variable rate used to calculate it from 0.35 per cent to 1 per cent. As a result the top monthly prize has been doubled to €500,000 in the last weekly draw of every calendar month.
So, when it comes to deposits, the golden rule of personal finance holds fast: shop around as inaction costs money. With the saving rates on offer, especially from Irish banks, you are unlikely to make significant gains unless inflation plummets but you could make far more than leaving it idle.
You can contact us at OnTheMoney@irishtimes.com with personal finance questions you would like to see us address. If you missed last week’s newsletter about pensions, you can read it here.
