British mortgage bank Northern Rock has made an aggressive entry into the Republic's savings market, offering to pay a gross rate of interest of 4 per cent on funds of between £1,000 and £2 million (€2.54 million). The rate of interest will apply to Northern Rock's direct saver account, which allows customers to deposit and withdraw funds through the post, by telephone or fax, and over the Internet.
Introducing its new account yesterday, the former building society insisted the 4 per cent interest rate was not a marketing gimmick and guaranteed to maintain its interest rate by one percentage point above European Central Bank rates until January 1st, 2001. After that it pledges to match ECB rates until 2002. The key attraction of Northern Rock's new account for savers is the flexibility it offers. While some Irish financial institutions offer a rate of interest of around 4 per cent, typically on amounts of more than £5,000, depositors are required to invest their money for a fixed period of between one and two years.
Northern Rock insists its 4 per cent interest rate does not have any such conditions attached. It says depositors can make withdrawals without notice or penalty as they chose. It does stipulate, however, that the minimum withdrawal must be £500.
To withdraw money, account holders can fax, post or telephone instructions to Northern Rock. This facility will be available Monday to Friday from 9 a.m. to 6 p.m. Alternatively depositors can effect withdrawals on the Internet.
The funds are then directed to the account holder, either in the form of a cheque or a payment made electronically to a nominated bank account. Northern Rock chief executive Mr Leo Finn says such transactions normally take between three and four working days.
Northern Rock does not levy any charges on withdrawals, except where a customers wants the funds to be transferred electronically to a bank account on the same day, where a £20 cost is incurred.
Interest will be paid either annually on December 31st or monthly on the first working day of the successive month depending on customer requirements. It can be accumulated in the account or paid to another building society or bank. All interest payment will be made net of Deposit Interest Retention Tax (DIRT).
Mr Finn says Northern Rock will aggressively set out to win a share of the Republic's £30 billion savings market. It claims to have around 2 per cent of the British savings market and is optimistic it will achieve a sizeable presence here. "We are here for the long term. We hope to do well." Direct savings accounts have proved very popular in Britain in recent years and have prompted a substantial shift in the amount of deposits made outside of the typical branch banking system. The direct approach allows financial institutions to bypass the costly branch system and is increasingly seen as the way forward for the financial services industry.
Mr Finn says Northern Rock's entry into the Irish market is part of a group strategy to establish a European funding base for its mortgage business. All of its Irish deposits will be collected by its Dublin office and used to fund its British mortgage operations.
It has no immediate plans to introduce its mortgage products in the Republic but may consider doing so in future, according to Mr Finn. Northern Rock, which is based in Newcastle upon Tyne, is regulated by the British Financial Services Authority and customer funds are protected under the statutory Deposit Protection Scheme, which also applies to Irish financial institutions.
