Banks’ Low Interest Rates Result in Annual €5bn Loss for Savers

According to financial adviser Vincent Digby of Impartial Financial Advice, Irish banks are benefiting from the low or no interest rates on household and company deposits, earning up to €5bn annually. Digby suggests that savers in Ireland are essentially subsidizing borrowers. However, pressure is mounting on the three main banks in the country to offer higher rates of return, as they currently rank among the lowest in Europe in this regard. Finance Minister Michael McGrath predicts that the banks will take action on deposit interest rates soon.

Digby highlights the fact that retail overnight and demand deposits in Ireland amount to nearly €140bn, earning only 0.04pc to 0.28pc. Additionally, company deposits totaling €63bn are only earning 0.08pc. This reveals that many individuals and businesses are not exploring alternative options for their savings. Digby acknowledges that it may be challenging to compel banks to raise deposit rates, as they are currently well-funded by their excess deposits.

Digby argues that the lack of competition in Irish banking prevents banks from aggressively competing for deposits, unlike their international counterparts. He believes that Irish banks are taking advantage of their dominant position. Therefore, the responsibility rests with depositors to seek the best rates of return on their savings. Digby encourages businesses and charities with substantial deposits to consider money-market funds, which offer higher returns compared to traditional bank deposits. Money-market funds invest in deposits in banks that pay competitive rates, and they have a triple-A rating from rating agencies. These funds can provide returns of up to 3%, although they do have management charges. It’s important to note that money market funds attract an exit tax of 41% and do not offer the €100,000 deposit guarantee.