Credit unions hope for relief from negative interest rate bank charges

One of Ireland’s biggest credit unions has said that it is yet to hear from its banking partners about when they will begin to reduce fees charged on their customer deposits following the European Central Bank’s decision to raise interest rates last week.

South Dublin Credit Union hopes to see a reduction in the negative interest rate fees that banks charge it for holding money on deposit. However, it said that its hands are tied because it has no alternative but to use banks to hold its members’ money.

From 2014 onwards, the ECB charged minus 0.5 per cent for surplus deposits placed with it by lenders. Retail banks, in turn, started passing on those charges to certain customers, including, in recent years, personal accounts with at least €1 million on deposit.

Both Bank of Ireland and AIB have announced that they will stop charging negative interest rates following the ECB’s decision last week to hike its interest rates, ending a near decade-long era of negative interest rates.

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South Dublin Credit Union was charged €109,847 by its banks in 2021, its largest single management expense in the financial year. This was up from more than €69,300 in 2020.

A spokeswoman for the credit union said the jump in costs was due to banks increasing the negative interest rate charges last year and also beginning to charge for bank account balances in excess of €1 million. She said the increase was also due to its members savings growing by about €3 million in 2021.

“South Dublin Credit Union did not directly pass bank charges on to individual members but being the highest management expense, it reduced the year end surplus, which in turn effects individual members by way of no dividend return on savings,” she said.

In a bid to avoid bank charges for as long as possible, South Dublin Credit Union “moved funds to different banks who offered the lowest negative interest rates” and also invested as much as possible under the “strict Central Bank rules imposed on credit union investments”.

To date, there has been no correspondence from the banks to South Dublin Credit Union in relation to a reduction in bank fees or charges, she said.

“Ultimately, we hope to see a reduction in negative interest rates charged by the banks ... our hands are tied as we have no alternative but to use the banks to hold our members funds,” she said.

A spokeswoman for the Irish League of Credit Unions said: “The ILCU notes the ECB’s rates decision last week ... we hope that the banks will now remove these charges in the context of the ECB announcement.”