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LAST UPDATE | 11 Dec 2023
IN A BID to capture a significant slice of the €150 Billion of household savings currently on deposit with Irish banks, Dutch bank bunq has just launched a new instant savings rate 22 times higher than the average instant savings rate in Ireland.
The move is set to send shock waves through Irish banking as recent soaring profits are almost entirely driven by the difference between the ECB deposit rate, which is currently 4%, and the rate Irish retail banks offer to savers, which is just 0.11% on average, according to the latest data from the Central Bank of Ireland.
By parking household deposits on overnight rates with the ECB and paying such low rates to savers, Irish banks have recently been able to boost their profits by almost €7 Billion a year.
With 93%, over €142 Billion, of Irish household deposits currently on overnight interest rates, this was always a risky strategy. Unlike those in fixed-term savings accounts, these savers are able to vote with their feet and move their money easily.
The difference between even the best instant rate available from the Irish banks and the new bunq offer is significant. Around €10,000 put aside for three years will earn savers over €462 more with bunq at 2.46% than with the best instant savings rate currently available from the Irish banks, 0.25% AER from AIB.
It’s not even that hard or scary for depositors to make the switch – bunq is the Dutch equivalent of Revolut and so is user friendly when it comes to setup options. The savings account is free, they now have an Irish IBAN, have over nine million customers across Europe and are covered by the European deposit guarantee scheme up to €100,000 just like the Irish banks.
Commenting on the new bunq savings rate of 2.46% Ali Niknam, the high-profile founder and CEO of bunq said “Our users in Ireland love us for our advanced security features, ease of use, and transparency. We’re happy to give our Irish users the best possible interest rate, fully insured and without the fine print”.
With nothing standing in their way and such a huge disparity between returns, it’s hard to see what’s now stopping a mass migration of depositors away from Irish banks. Plus bunq isn’t the only European player currently eyeing Irish bank deposits, both German fintech Raisin and UK-based Revolut are rumoured to have instant savings products in the works.
Faced with a possible mass defection of savers, it’s likely that Irish banks will now have to boost their own rates to savers.
Up until now, Irish banks have focussed on increasing the rates available on the much less popular fixed-term savings accounts leaving their on demand savings products largely untouched. As fixed term accounts tie people in, they are great for banks, but not so much for savers.
If they want to shore up the 93% of deposits on overnight rates, Irish banks will now have to increase their instant savings rates.
The Irish banks will then face a choice of eating into their current super profits or trying to maintain them by increasing the rates they charge to variable mortgage holders.
It seems that we may be seeing some real competition emerging in a previously overly cosy banking market. As the Minister for Public Expenditure Pascal Donohue said recently “Looking to put money in other parts of Europe, is not an unpatriotic act. It’s the way the single market functions.”
moneysherpa.ie is regulated by the Central Bank of Ireland and is an independent personal finance website founded by Mark Coan who previously held senior positions with the Irish Independent and Permanent TSB.
€462 less 33% Dirt = €103 per year or €2 er week.
Seriously, how is anyone arguing that €2 per week on €10,000 put away for 3 years is actually a good deal when inflation will be over 2% for the same period.
I get that people dislike Irish banks but this isn’t the correct issue to be highlighting- it just perpetuates the appalling levels of financial illiteracy we have in this country.
Encouraging people to make a less %hitty decision is not good financial advice.
Deposit rates will never beat inflation over the longer term, the entire global financial system is set up to ensure this.
Why not educate people about the benefits of choosing a well diversified low cost investment and actually grow the value of their savings rather than fool them into thinking that 2.46% gross is a good deal.
It’s not – it’s lousy.
@Wombleman: We need to. Its the future of how we earn money when jobs are no longer necessary
@Wombleman: Well said. Not worth the bother moving it, or the ball ache of reporting DIRT….. that’s why deposits are in current not savings accounts
@RC247: that makes no financial sense when moving it actually saves your money eroding with inflation. Irish banks are scamming you & making money off you by doing so!
@Wombleman: The vast majority of people are never going invest in that way. Most don’t even move their money into an account with a higher interest rate. The banks are making money by sticking peoples money on deposit with the ECB and ripping the average saver off. It should not be allowed.
Just moved my BOI, PTSB and An Post savings to TFBank at 3.90% fixed for 1 year.
We desperately need a tax free savings & investments scheme just like the UK ISA system, the Canadian TFSA system or the (unfortunately named) US IRA savings vehicle. In the UK, residents can deposit up to £10,000/yr and earn interest free from tax.
@MTB Mayo: …sorry, it’s actually £20,000/yr now!
Why would anyone think that a bank will do anything other than take their money?
I dont understand why people are still using Irish banks. It is easy enough to open non-resident accounts in other European countries and avail of better customer service, better rates, and lower fees. Also part of the instant SEPA system unlike the Irish banks which are the only EU country yet to sign up to the protocol because the Irish banks deem it “too costly” to upgrade the technological infrastructure. I think the EU deadline was 2021, yet the Irish banks project it will be 2027 until they can partake in the system.
@Niall English: I thought Ireland was a full SEPA member… Do the Irish banks not ‘play the game’?
I didn’t encounter any problems moving my direct debits to a GB or LT Revolut account before it became IE, both with utilities and with credit card, loans, etc.
@Jerry LeFrog: they are a member of SEPA but they do not have capability of the SEPA Instant Credit Transfer Protocol e.g, instant transfer in 10 seconds. Irish bank transfers still take one working day. Its archaic stuff, technological infrastructure needs a serious upgrade and they complain they dont have the funding for this. Be nice to get into the 21st century banking. They were hoping this would be solved with that app they were going to launch together (BOI, AIB, and PTSB) but that got canned a few months ago.
https://www.raisin.ie/
Look at the rates with raisin.
F the Irish banking cartel!
To make money you need money. If you your family and mates can afford a min 100 euro each a month , you better of collectively putting into one investment pot where yous are all equal holders.
have your say