FOR IRISH SAVERS, parched in a desert of low rates and awkward deals, it must have appeared to be a mirage.

Last week, Revolut announced instant access savings accounts with rates of up to 3.49%.

While the highest rate is only available for users of one of the digital lender’s paid plans, standard users who pay no fees can still get rates of 2%.

This is better and simpler than the deals from most Irish banks, which tend to offer poor rates with a variety of terms and conditions.

Most importantly, Revolut’s offering gives decent interest on instant access accounts – where the overwhelming majority of Irish people keep their money.

The move has at least sparked some response from Irish lenders: just days after Revolut’s announcement, Bank of Ireland has come out with an offer of its own.

Bank of Ireland previously trumpeted how consumers could get up to 3% on savings, but there were a range of strings attached – maximum contributions were €2,500 per month, the rate only applied up to savings of €30,000, and Venus had to be in the fifth house.

Now it’s offering a 3% rate on two-year deposits (6% over the two-year term) on any amount. No more messing around.

It’s still a fixed deposit, requiring customers to tie up funds for two years, rather than being on-demand like Revolut’s. But it’s still a step up from what was offered before.

That’s good news for Irish consumers. The big question mark is whether customers will take advantage of it.

Moving accounts

The issue, as discussed before, is that Irish consumers don’t tend to take free money if it would require moving their savings.

The pillar banks of AIB and Bank of Ireland are making enormous profits (about €2 billion each last year), which have been partly fuelled by savers keeping their money in on-demand accounts that pay miserly average interest rates of 0.13%.

The banks then deposit these funds with the European Central Bank, where they get a 4% rate. They pocket the difference and – hey presto! – are let on their way to major earnings.

It’s estimated that over 90% of Irish household savings are still in these on-demand accounts, where they essentially generate nothing for their owners.

Various reasons have been thrown up to explain why Irish savers don’t move their money

The most likely one, cited in research published last year by the Economic and Social Research Institute, is that the process of switching is viewed as “complicated and time consuming”.

Revolut claims 2.7 million customers in Ireland, whose deposits are protected under the bank guarantee scheme the same as in an Irish lender, so it may do something to lower the perceived barrier of entry.

Savers would be wise to take advantage of the rates on offer sooner rather than later, as they are unlikely to last.

Revolut’s move, and Bank of Ireland’s response, have already caused some surprise in the market due to their timing.

European Central Bank officials – including former Irish Central Bank governor Philip Lane – have flagged repeatedly that rates will almost certainly be cut at the organisation’s meeting on 6 June.

A 0.25% reduction is viewed as something of a ‘done deal’ by analysts and investors. But even if this doesn’t materialise at the June meeting, the ECB rates look set to come down sooner rather than later.

European interest rates were hiked throughout 2022 and 2023 in response to surging inflation. Higher rates drive up borrowing costs, restricting consumer buying power and easing price rises.

EU inflation was 2.6% in May, up from 2.4% in April.

Although that increase – the first rise in a year – casts some doubt on the June rate cut, markets are still expecting steady drops this year and next. Most estimates predict rate cuts of around 0.75% in 2024 and up to another 1% in 2025.

Lag time

What this means for Irish consumers is that once European interest rates fall, Irish savings rates will likely follow.

There will probably be some lag time, similar to how it took a few months for the major lenders to feed the ECB rate hikes to mortgage costs.

But companies are already pricing in the cuts.

Take a look at online savings platform Raisin, which gives access to EU-wide savings rates and has often been touted as a banking alternative for Irish consumers.

At the end of 2023, rates of 4.2% were on offer through Raisin. The best deal on the platform is currently 3.5%.

While the reduction is relatively small, it is likely a sign of things to come.

Consumers may ask why they should bother moving their money if rates will likely start falling in the near future.

And it’s true that the offers from Irish lenders may represent something of a lunge to win new customers, before savings rates steadily fall.

But the question for consumers is why not take advantage of this?

Anyone taking Bank of Ireland up on their offer now can lock in savings rates for the next two years, before any cuts (although the cash is then, of course, tied up for two years).

Those who prefer instant access to their cash may get a lower 2% rate with Revolut if they’re on the standard plan, but they would be able to move their money at the drop of a hat if the digital lender cuts rates and there are better offers elsewhere.

There are also plenty of other deals around, from the likes of Dutch bank Bunq, N26, or even AIB for those who are more traditionally minded.

It’s understandable that there is an inertia for savers. Opening a new bank account can seem like a hassle and there is always a confidence issue with trusting your hard-earned cash with a different lender.

But this kind of behaviour is what banks rely on. Moving deposits should be like moving your electricity provider – just something consumers do regularly to secure the best deal.

Right now, there is essentially free money on offer.