Savers forced to move deposits as credit unions ramp up savings caps

Negative interest rates on deposits at Ireland’s two largest banks are being blamed by credit unions for the introduction of caps on the savings accounts of their members.

According to research by The Irish Times at least 36 credit unions across the State have imposed savings limits on their members, sometimes as low as €15,000. The imposition of these limits ultimately means that excess amounts in these credit union accounts typically end up being lodged back with the pillar banks by savers.

AIB is understood to be charging corporate customers as much as 65 basis points to keep their money on deposit. This means that should a customer, such as a credit union, deposit €1 million with the bank, rather than earning interest on it, the customer will in effect be charged €6,500.

A spokesman for the bank said it has tried to insulate “the vast majority of our customers from the impact of a sustained period of negative interest rates” but that there were “a relatively small number of larger depositors with whom AIB seeks to reflect the commercial realities of the negative interest rate environment”.

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Bank of Ireland is understood to be charging corporate depositors as much as 40 basis points (or a negative rate of 0.4 per cent) on short-term deposits.

While European Central Bank rates remain at zero, inter-bank rates, known as Euribor, are in negative territory, with one month rates of -0.377 per cent on Monday (June 10th), and six-month rates of -0.258 per cent.

Credit unions also blame Central Bank rules for cutting the amount of savings they can accept from members, arguing that for every €100 saved in the credit union, they have to set aside €10 as part of the regulator’s capital requirements. This is because credit unions are required to maintain 10 per cent of their assets as a minimum regulatory reserve.

The limits come as savings in the credit union sector continue to reach new highs. Savings hit € 13.2 billion in March of this year, up 20 per cent on 2008, while at the same time demand for lending has shrunk. Figures from the ILCU show lending down from €6.4 billion in 2008 to €4.3 billion as of March this year, which means there are fewer opportunities for credit unions to put their deposit bases to productive use.