Interest rates on household on-demand deposits, including money in current accounts, stood at a third of what customers of the average euro zone bank were receiving in November, according to Central Bank figures.
Well more than 90 per cent of Irish household deposits remain in such low-yielding accounts, even after the State’s three remaining banks increased headline rates on term deposits to as high as 3 per cent last autumn.
Interest rates on on-demand deposits, which are also known as overnight deposits, averaged 0.12 per cent in November, the latest Central Bank figures, published on Wednesday, show. While this marks an increase from an average rate of 0.03 per cent in November 2022, shortly after the European Central Bank (ECB) started to hike official rates, it remains well off the average 0.36 per cent being paid by banks across the euro zone for on-demand deposits.
The low rates banks are offering on overnight deposits have driven their profits in the past 18 months as they earned billions of euro in interest on surplus cash stored with the Central Bank.
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AIB and Bank of Ireland have more than €60 billion of excess customer deposits parked in the Central Bank of Ireland, almost all of which – outside of minimum reserves commercial banks must place with the authority – are generating interest. The two are earning an annualised €2.3 billion in interest, based off the ECB’s 4 per cent deposit rate.
This contrasts with the period between 2014 and mid-2022, when euro zone central banks were charging lenders negative rates on surplus deposits.
The weighted average interest rate on new household deposits with agreed maturity rose by 0.03 percentage points in November to 2.62 per cent to stand at the highest level recorded since 2009, the latest Central Bank figures show. Still, it remains below the euro-zone average of 3.33 per cent.
Meanwhile, the weighted average interest rate on new Irish mortgages in November was 4.25 per cent, down 0.02 percentage points on October but up 1.68 points on a year earlier. The equivalent euro area average rose by 0.06 points in November to 4.13 per cent. Rates across the euro zone ranged from 1.93 per cent in Malta to 6.26 per cent in Latvia.
[ Euro zone heading for another downturn, warns ECB vice-presidentOpens in new window ]
The ECB is widely expected by economists and financial markets to carry out multiple rate cuts this year, starting as early as March, even though some members of the bank’s governing council believe it could take longer to be certain inflation is under control.
“While it’s very likely that rates will come down at some stage this year, it doesn’t mean that mortgage lenders will pass any cuts on to their customers, mainly because they have not yet passed on the full amount of the 10 successive ECB rate hikes,” said Joey Sheahan, head of credit at online brokers MyMortgages.ie.
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