Irish savers losing €120m a month as banks fail to raise deposit interest rates, analysts warn

The failure of Irish banks to increase deposit interest rates in line with multiple rate hikes from the European Central Bank (ECB) since last summer is costing Irish savers more than €120 million every month, financial analysts have warned.

While the ECB has upped its key deposit rate from zero to 3.25 per cent in the last 12 months, there has been no comparable movement on deposit interest rates in Ireland.

There is about €150 billion on deposit with the State’s banks and every 1 per cent that is not passed on to savers amounts to €1.5 billion in lost interest each year, according to Karl Deeter, the chief executive of online mortgage firm onlineapplication.com.

He pointed out that “many deposit rates are half or three-quarters of 1 per cent when they should be at least 1.5 or 2 per cent. Spain, France and many other countries in the EU are offering much better rates than Ireland and the idea that Irish banks are just so brutally regulated or so brutally inefficient that they can’t offer higher deposit rates simply isn’t true,” he said.

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His concerns were echoed by Daragh Cassidy of price comparison and switching website bonkers.ie.

He told The Irish Times that Irish banks’ “slowness to pass on the ECB rate hikes has largely come at the expense of savers. While deposit rates of over 3.5 per cent are now on offer with some banks in the rest of the euro zone, the best rate here is 1.5 per cent. In essence, savers are now subsidising mortgage holders.”

He suggested Irish banks “are awash with deposits. They don’t need to offer decent rates to savers” and he expressed the view that banks could increase their deposit rates somewhat “without having to up their mortgage rates”.

“For example, some of AIB’s fixed rates are now over 4.5 per cent while the best savings rate it offers is a measly 1 per cent. That’s a big difference. No wonder so many of its recent trading updates have been so positive.”

[ ECB’s interest rate plans in flux as euro-zone inflation drops more than expected ]

Financial adviser Mark Coan of moneysherpa.ie noted that despite multiple ECB rate increases there had been “almost no movement” in Ireland excluding tracker holders.

“The generosity of the main banks in not passing on ECB rate increases appears out of character,” he said. “Cynics may suggest that by not increasing variable rates the banks are more able to justify not increasing deposit rates. By holding deposit rates at near zero the banks can pocket juicy returns for themselves by maximising the spread between the rate they pay savers and the rate they charge lenders, known as their net margin.”

An AIB spokeswoman said the bank had “insulated the vast majority of our deposit customers during a sustained period of European negative interest rates over eight years”. She added that it had increased deposit rates in recent months and, in “light of the evolving interest rate environment, we constantly keep all our rates under review”.

Bank of Ireland said it had been “very measured in the application of mortgage rate increases over the past year” and had made no change to variable mortgage rates but increased fixed rates by up to 1.5 per cent. “Along with a range of other deposit increases, we recently announced a new savings product offering a rate of 1.5 per cent. We will continue to take a measured approach into the future.”

A spokeswoman for Permanent TSB said it keeps rates “under review on an ongoing basis”, adding that no ECB rate increases have been passed on to variable-rate customers. It said it has “increased our deposit rates three times since November 2022 by up to 1.5 per cent”.