Variable-rate SSIA holders likely to be hit by rate cut

Special Savings Incentive Account (SSIA) holders will feel the pinch as financial institutions look to offset any cut in interest rates paid by borrowers following the decision of the European Central Bank (ECB) to lower rates by half a percentage point to 2 per cent.

Institutions are coming under strong pressure from the Government, Opposition parties and the Irish Financial Services Regulatory Authority to pass on the rate cut in full to mortgage customers. But with rates on deposits already hovering just above 0 per cent, the banks and building societies have little option but to look at other products to preserve margins.

People holding variable-rate deposit-based SSIAs have already seen rates falling from 4.75 per cent when the accounts first opened to as little as 1.75 per cent before the latest rate cut.

That is now likely to fall further, possibly as low as 1 per cent. However, all the main providers of variable-rate deposit SSIAs have given customers commitments not to reduce interest rates more than one percentage point below the ECB rate, limiting their scope.

The latest cuts, which are likely to feed through to savers next month, will bring a smile to the faces of those who opted for the fixed-rate option on SSIAs. They are earning up to 4.5 per cent on their investment.

Despite looming cuts in variable rates, SSIA holders will still earn an effective interest rate of 8.9 per cent on their savings before bank interest thanks to the Government's 25 per cent top-up.

An incorrect interest rate graph appeared in yesterday's paper. The graph above accurately shows the changes in rates.