Consumers losing ‘tens of thousands of euro’ by not shopping between banks

People are losing out on savings of up to tens of thousands of euro by not shopping around between banks when taking out mortgages, a leading Economic and Social Research Institute (ERSI) researcher has said.

Fresh research from the ESRI found a majority of consumers had never considered switching their mortgage, credit card or loans.

The research, commissioned by the Department of Finance, surveyed a national sample of almost 3,000 consumers, providing a detailed account of consumer behaviour in retail financial services.

Prof Pete Lunn, head of the ESRI’s behavioural research unit, said it was also clear a “large proportion” of people were not comparing banks when first taking out a loan or getting a credit card.

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For a loan of €10,000 over three years, the difference in the cost of interest payments offered by banks was “almost €1,000″ between the most expensive and the cheapest option, he said.

People who did not shop around between banks before taking out a loan or mortgage were “basically playing Russian roulette” with their money, said the senior researcher.

“If I put the standard mortgage in for an average house price, with a 10 to 20 per cent deposit for first-time buyer territory ... Over the lifetime of that mortgage you’re talking about a difference of €20,000-€30,000 in interest payments, by simply not shopping around,” he said.

These were “really big financial losses to households potentially”, said Prof Lunn. “You could well be missing out on a better deal that is saving you thousands of euro,” he said.

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The new research highlighted that people also found it difficult to compare offers between banks down the line, in part because they were afraid of making a mistake if they switched providers.

People were more likely to switch banks if they were in the “habit” of comparing offerings when initially taking out a mortgage, loan or credit card, he said.

Prof Lunn said it was a “myth” that all banks were now charging the same high-interest rates. He said there were still “very substantial price variations” between banks.

Consumers should also be wary of cash-back offers on mortgages, which he said were designed to “fool” people.

Despite the recent exit of Ulster Bank and KBC Bank Ireland from the market, the ESRI research established that switching rates in the past five years varied between 6 per cent for mortgages and loans to 17 per cent for bank accounts.

Most consumers do not consider switching their loan (69 per cent), credit card (59 per cent) or mortgage (54 per cent). Less than 3 per cent of product holders start the switching process but do not end up switching.

Minister for Finance Michael McGrath said the relatively low rates of Irish consumers switching banks “has long been of concern” for policymakers.

“The departure of Ulster [Bank] and KBC was a massive setback for the industry and particularly for the consumers … It will reduce competition and that is often negative,” he said.

Mr McGrath said there were “other players” moving into the market, as well as “opportunities” for credit unions and An Post to increase competition among banks.