This time last year we were living in a high interest environment with successive rate hikes from the European Central Bank (ECB) that saw the cost of borrowing spiral and the potential gains to be made from savings also increasing – albeit at a considerably slower level.
There was no real indication things were going to change materially.
But then inflation across the EU started falling and the economic wheels started turning again – in reverse – with ECB rate cuts wiping away many of the potential gains that were on the table for savers.
The shifting sands meant most Irish savers missed out on higher rates that were available as a result of a heady mix of fear about making the wrong call, misunderstanding the market, general apathy and broad confusion.
As it stands, Irish households have over €160 billion in savings with the vast majority of it resting in accounts that offer rates of interest that are non-existent or negligible.
The interest earned on that cash over the course of a year comes in at what sounds like a fairly hefty €196 million. But if everyone who had money in a low-yield account moved it to one that offered a rate of interest of just 1.4 per cent a year, the annual interest earned would climb to €1.96 billion.
[ Why do Irish people continue to make the same mistakes with their savings?Opens in new window ]
Recently Brokers Ireland called on the Government to address what it described as the “disproportionately poor savings” rates on offer to consumers in Ireland.
And just how poor are those rates? According to Central Bank data as much as €140 billion of Irish deposits are currently sitting in overnight deposit accounts earning interest averaging 0.13 per cent.
“The Government should immediately introduce the recommendations of its own Funds Sector Review to enable consumers get a better return on their money and remove the massive tax disincentives that keep them defaulting to bank deposits with very poor outcomes,” said Brokers Ireland deputy chief executive Rachel McGovern last month.
Banks who are criticised for offering such miserly rates while recording large profits say they do offer better rates but it is up to consumers to go looking for them and there is certainly some truth to that.
As ECB rates climbed over the course of 2023 and 2024 the returns offered by mainstream banks climbed with most offering rates of in excess of 2 per cent (not much but better than nothing) for a 12-month term investment.
Despite rising deposit rates the percentage of Irish savers who moved their money – or some of their money even – into longer term or better interest-bearing accounts stood still at around 5 per cent.
We are in a different place now with the ECB lowering interest rates almost on a monthly basis.
Last month, it rolled out its seventh rate decrease since last June, again cutting rates by 0.25 per cent. It is actually the eighth, if what the ECB referred to as a technical adjustment that amounted to a 0.35 per cent cut, is included.
The bottom line is the ECB’s lending rate is now 2.4 per cent compared with 4.5 per cent this time last year.
“We’re also likely to see yet more cuts to savings and deposit rates,” noted Daragh Cassidy of price comparison and switching website bonkers.ie. He said savers “are going to need to find better ways to manage their money”.
So broadly speaking what are the savings options out there?
There are the mainstream banks, the choice favoured most people.
Despite the fact that it was these banks – to a greater or lesser degree – who imperilled the nation with their lax lending practices in the run-up to the economic crash more than 15 years ago, many people still view them as the safest bet.
Another avenue that is familiar to many are the multiple State Savings Accounts and they come with the added advantage of no Deposit Interest Retention Tax (DIRT) which otherwise sees 33 per cent of interest hoovered up by the State.
The fintechs are proving to be increasingly popular and offer savers a broader array of options with Revolut, N26, Bunq, Raisin and Trade Republic frequently offering more attractive returns and easier access to deposits than pillar banks.
The interesting thing about latter two are they offer their customers access to interest rates on offer from banks across 12 different European countries.
Deposits with Raisin are protected up to an equivalent of €100,000 per depositor and bank under the European Deposit Guarantee Scheme while online brokers, such as Trade Republic, offer the same level of deposit protection under the same scheme.
There are the credit unions which do not pay interest on investments but do pay dividends determined by each local Credit Union. They are also among the most beloved institutions in Ireland and have been helping people who might otherwise struggle to borrow money for generations.
Insurance companies offer savings or pension investment products and while returns are never guaranteed they point to better growth over longer periods than the banks can match.
And after that you enter the realm of stocks and shares and – if you are either incredibly savvy and/or very foolish – the world of crypto.
So what is on the table from our banks and start-ups now?
AIB is offering a rate of 3 per cent in its Online Regular Saver account up to a maximum of €1,000 per month with the rates available to anyone saving above that threshold falling back to its Online Standard Rate of just 0.25 per cent. After a 12 month period the rate falls sharply.
The bank is also offering fixed term deposits of between 1.5 per cent and 2.75 per cent on sums of at least €5,000 that are locked away for between six months and two years.
Bank of Ireland‘s SuperSaver account comes with a rate of 3 per cent for 12 months and a maximum savings amount of €2,500, with the rate falling to the standing regular savings rate of 2 per cent after the first 12 months. You can also get €100 back on your home or car insurance if you open such an account and buy your insurance through the bank.
PTSB‘s Online Regular Saver account comes with a rate of 2.5 per cent on savings of up to €1,000 a month up to a max of €50,000 and if it exceeds that maximum, the rate to the whole amount falls back to almost nothing
EBS – which is owned by AIB – has a Family saver account offering a rate of 3 per cent for the first year falling back to 1.25 per cent after that initial period and it restricts withdrawals to a maximum of two per year.
Bunq Free comes with an AER of 2.51 per cent, regular deposits are not required, two withdrawals are allowed each month, interest is paid weekly and it comes with a free virtual credit card attached.
Trade Republic is offering rates of 2.25 per cent to regular savers.
When it comes to lump sums, the most attractive option on the market at the moment, based on bonkers.ie information is with Raisin which will get people 2.76 per cent with PrivatBanka based in Slovakia for a two year fixed term or 2.7 per cent with Haitong in Portugal.
Closer to home, the 10-year national solidarity bond from State Savings is promising an AER of 2.01 per cent with a 22 per cent total return. Its five year savings returns are promising a 1.74 per cent AER with a 9 per cent total return. Its three year savings bonds, meanwhile, come with an AER of 1.3 per cent with promised return after the three years of 4 per cent plus a Government guarantee.
The downside is the funds are locked in for the period so savers will need to be sure they don’t need the cash for an extended spell. The plus side is there is no DIRT paid on the returns.
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 by Dominic Coyle on how to finance a new car, you can read it here.
