IRISH BANKS ARE making over €500 million a month by depositing €139 billion of Irish overnight savers money with the European Central Bank (ECB) at 4.0% interest, but only paying out 0.06% on average to customers.
As a result reported bank profits have soared, with €1.7 billion being made in just three months purely on the difference between the interest banks are getting from the ECB and what they are giving to customers.
Taking Bank of Ireland as an example, by depositing the €29 billion they are holding on behalf of their customers with the ECB at 4.0% they pocket around €1.3 billion in interest per year. The current rate they offer to overnight customers is 0.1%, so on that same money, they pay out only €30 million a year to customers, clearing them well over a billion Euros a year.
It’s that simple, no fancy high finance involved. The banks point to the higher interest rates available on their fixed term products which have an average interest rate of 1.89%. However tying your money up in these products has significant downsides, which is why 94% of Irish savers are on the much more popular instant access overnight rates.
Some have called for intervention to set rates at the banks or a windfall tax on banks’ profits, but heavy-handed tactics like this are partly the reason banks such as KBC and Ulster pulled out of the Irish market in the first place, reducing much-needed competition. Fortunately, there is a much more direct solution available.
The reason banks believe they can get away with giving such a low interest rate is that they think Irish savers won’t move their money to get higher saving rates. Yet as we have seen with UK-based Revolut, which now has over two million Irish customers, customers will switch when better banking products are to be found.
The Dutch equivalent of Revolut, Bunq has now launched a free savings account offering 1.56% overnight to Irish savers. That’s over six times higher interest than the best instant rate available from the Irish banks. The Bunq sign up process is similar to that of Revolut and as Bunq is a bank in the EU your deposit is still covered under the EU deposit scheme of up to €100,000.
There are even higher instant rates available for Irish savers, up to 3.25% on uninvested cash, from international stock trading platforms like Lightyear and Trade Republic, but as these platforms aren’t banks you should do your research into the pros and cons of these trading platform options carefully.
If you don’t need instant access to your cash there are even higher rates available. Raisin.ie is a German bank marketplace giving online access to banks across the EU, with rates as high as 4.21% available if you are willing to tie up your money for 12 months.
Sign-up is a little more work than with Bunq, but is still all online and as Raisin’s banks are all in the EU they are also covered by the EU deposit guarantee scheme.
If the Irish banks continue to keep almost all the interest they are getting on Irish savers’ money to themselves then the answer is clear. Irish savers need to switch to the better rates elsewhere.
As the Minister for Public Expenditure Pascal Donohue recently said, “Looking to put money in other parts of Europe, is not an unpatriotic act. It’s the way the single market functions.”
Irish savers have it in their power to vote with their feet and withdraw the €139 Billion currently in instant access deposit accounts to put an end to banking super profits overnight.
Mark Coan is the founder of online money guide moneysherpa.ie. Email: mark@moneysherpa.ie.
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