ANYONE WITH AN aversion to the sound of teeth gnashing would have wanted a good set of earplugs over the last few weeks.

Almost nothing is more certain to provoke this sound than headlines trumpeting how Irish banks are earning billions of euros in profits.

In February, Bank of Ireland announced pre-tax profits of €1.9 billion for 2023, while earlier this month AIB said it made a profit of just over €2 billion during the same period.

Broadly similar results, which tends to provoke a broadly similar response from angry consumers.

“Ireland’s banks are creaming it!

They’re making profits from *my* deposits, and yet paying (virtually) no interest on savings! It’s not fair!”

And it isn’t fair. The exceptional profits of Ireland’s banks have not been achieved through some incredible innovation or brilliant new product.

They are almost entirely a function of higher interest rates from the European Central Bank. Just over two years ago, in the near-mythical times of rock-bottom rates, Ireland’s banks earned basically nothing from excess customer deposits.

Now, it’s the other way around – Irish lenders are getting about 4% on the approximately €60 billion in customer savings which are sitting on deposit.

Irish consumers typically keep their money in on-demand accounts, where the typical interest being paid out is a derisory 0.13% per year. Compare this to the 4% rate banks get – lenders get to pocket the difference, leading to their massive profits.

There was political pressure on this issue last year which resulted in the three banks introducing returns of up to 3% on savings accounts.

But these came with caveats – the big one being that there was a limit on how much could be moved into these 3% accounts per month.

For example, Bank of Ireland allows savers to put away €2,500 a month, while Permanent TSB and AIB allow €1,000 a month.

It means for anyone with relatively high savings, it could take months and months to drip-feed their money in, limiting their returns.

But most Irish consumers aren’t even moving to these offers. It’s estimated that over 90% of household savings are still in on-demand accounts, still with their average interest payments of just 0.13%. This is what is feeding banking profits.

So what can their customers do about it?

The obvious answer is – move their money. If enough customers moved their cash to accounts paying more interest, banks would likely be more motivated to improve their interest offering.

“But move where?” Irish consumers cry. While Ireland’s banking system is effectively a triopoly – Bank of Ireland, AIB and Permanent TSB – even moving savings from on-demand accounts to better saving or fixed offers with these three lenders would be something.

Other companies have even better offers, such as online savings platform Raisin, which gives access to EU-wide interest rates of up to 3.5% on fixed term deposits of as little as three months. 

Deposits are protected up to €100,000 under the EU banking guarantee, so it’s essentially as safe as leaving the money sitting on deposit with one of the Irish banks.

Other digital operators also offer some choice, such as Dutch bank Bunq, which offers rates of 2.46% on instant access accounts – again, leagues above the 0.13% most people are getting.

So with better options out there, why don’t more people move their money?

A report published by the ESRI (Economic and Social Research Institute) last year gives some insight.

The study polled almost 3,000 people about their behaviour using banking services. It confirms what was already known – the vast majority of people don’t shop around when it comes to banking products.

The reasons cited for not switching were worries about making a mistake, not being sure of saving money or just simply forgetting to do so.

The most commonly cited reason was perhaps an unsurprising one – the issue that the process of switching was viewed as “complicated and time consuming”.

The key suggestions from the study were that consumers educate themselves using comparison sites such as the CCPC to ensure they don’t lose out.

Consumers might question why they should bother – after all, even for the accounts with better rates, the interest earned is relatively modest.

For a €10,000 deposit, the interest earned after paying DIRT at 33% would be about €200 for the year. Is it worth the hassle?

Well, there’s always the argument that smaller savings compound over time. And any significant number of customers moving their savings would also put pressure on lenders to up their game and increase their rates.

If consumers still don’t think it’s worth their time to shop around, fair enough. But the next time a headline of one of the Irish banks raking in billions in profits (on the back of their savings) is published, the teeth-gnashing should probably be kept to a minimum.