There's nothing like money in the bank. It's straightforward, secure and easy to access, but probably not earning much interest. In today's low-interest environment, inflation is overtaking deposit rates. Despite this, Irish people are slow to shift their money elsewhere.
Historically, cash has yielded the least return on capital, but there are times when cash is king. Whether it's an emergency fund or a deposit for a house, there is no point in undermining the security that comes with the safe haven of a deposit account.
Necessary savings aside, many people with large bank balances seem to be reluctant to change tactics and make their money work for them.
It may be the comfort of having a deposit book to open and admire on a regular basis, it may be lack of knowledge, but apathy is probably the biggest factor that ensures considerable sums are left on deposit. According to the latest Central Bank figures, individuals are holding €28.7 billion on deposit here. Depending on the amount on deposit and the type of account, that pool of money is earning interest ranging from 0.1 per cent to 5.75 per cent. Obviously, many people have good reasons to keep their money on deposit, but it does not necessarily mean that this cash should earn little or no interest. It is possible that your financial institution is prepared to review its rate upwards or change the account type if you take the trouble to question what you are being offered.
In Irish banks and building societies, amounts of up to £5,000 (€6,353) generally earn no interest, or minimal interest of 1 per cent or less, when they are held in an instant access or demand account. National Irish Bank and Irish Nationwide share bottom place in this category, with an interest rate of 0.1 per cent. Northern Rock, the British mortgage bank, made an aggressive entry in to the deposit account market in November last year. One year later, it still has the best demand deposit interest rate at 5.75 per cent.
The Northern Rock Direct Saver account allows unrestricted withdrawals from a minimum of £500 but, as it does not have a branch presence here, it is not an over-the-counter service. Withdrawal instructions can be made by post, telephone, fax and Internet, and you should allow at least three working days for the money to come through. Direct Saver has attracted more than £220 million since its launch. What makes the Northern Rock product so attractive is that the interest rate is guaranteed to be 1 per cent above the European Central Bank rate until January 1st next. Thereafter, the rate will be 0.5 per cent above the ECB rate until July 1st, 2001, and equal to the ECB rate from then until the following January. No domestic financial institution offers any built-in guarantees of this nature.
About 6,000 Irish savers hold Northern Rock accounts, with an average balance of £37,000. The bank says it is on target to win 1 per cent of the market by the year's end. Irish rates improve considerably if savers are prepared to put their money in an account with 30 days' notice for withdrawals, but they still don't beat Northern Rock. Bank of Ireland offers the next best rate for the lowest minimum balance in this category at 4.25 per cent on a minimum deposit of £3,000.
Some institutions, such as EBS and Irish Nationwide, offer higher rates for much greater amounts, but their rates for amounts under £25,000 are poor. An Post has traditionally been considered a good place to put savings but, as with most institutions, its interest rates for deposits are low.
Last year, £276 million was deposited over the counter in An Post, according to its annual report. It offers 0.25 per cent for amounts under £5,000 in its Deposit Book account. This rises to 0.5 per cent for amounts of £5,000 or more. An Post's 30-days' notice Deposit Account Plus has an interest rate of 2 per cent for amounts under £40,000, rising to 2.5 per cent at £40,000 or more.
Credit unions are perceived as offering a better return on savings but their figures are not too impressive. The credit union deposit account paid 1.9 per cent in interest last year. Members have to have at least £1,000 in shares in the credit union to be eligible to open a deposit account. The dividends rate for shares is harder to compare to other types of deposit account, but last year the national average was 3.24 per cent. The interest picture changes for the better on fixed-term savings, but again there is wide variation so it would be foolish not to shop around. Minimum deposits apply in this category and some institutions are kinder to smaller savers. TUSA and AIB offer a respectable 5 per cent on a minimum amount of £5,000 on a one-year fixed term.
Much as the financial institutions might like it, there is no need for you to be a passive customer. In many cases, it will cost you money to ignore your finances. So, the next time your deposit account statement comes through the letter box, take a little time to check the interest rate and then weigh up your options.
