Deposit rates are slowly rising; yes, they still won’t offer much relief to inflation-hit Irish savers, but they are improving.
On Tuesday, AIB announced rate increases across a range of deposit and savings offerings for both AIB and its subsidiary EBS, with immediate effect.
Last month, Bank of Ireland pushed up its rates, even introducing a new savings product with an initial interest rate of 1.5 per cent.
Rates are still far below where most savers would like them to be. However, it doesn’t mean that you shouldn’t move your money to get whatever benefits might now be out there. Remember, €20,000 in an account paying 0.1 per cent will earn just €20 at the end of the year. But if it was earning 1.56 per cent – currently the top rate on the market – you’d get €312. So, while rates may look low, it is still worth moving your money around.
Easy access
WINNER: Bunq
If you have your money “resting” in an easy access account, you are earning next to nothing on it. And in real terms, you’re losing a considerable amount, thanks to inflation, which, latest figures show, is still a heady 6.6 per cent.
With rates largely ranging from zero (Bank of Ireland) to just 0.1 per cent (EBS/AIB), if you have your money with an Irish bank, at best, you’ll be earning just €20 per year on savings of €20,000.
A better alternative is Dutch bank Bunq, which is paying 1.56 per cent on deposits. At that rate, you’d earn €312 on your €20,000 savings in a year. Interest is paid monthly.
You can make two withdrawals from your account per month, and the rate applies to savings of up to €100,000. The bank says applications for a savings account for Irish customers take just five minutes.
Your deposits are covered by the Dutch deposit guarantee scheme up to €100,000.
Earlier this year, Bunq said it had more than €2 billion in deposits, up by more than 90 per cent, year on year.
Fixed rates
WINNER: PTSB + State Savings
If you’re prepared to lock away your funds for a longer term, you can do better than most of the rates on offer for instant withdrawal. The downside is that you may have to pay a charge should you need early access to your money.
At first glance, Permanent TSB looks to have the best fixed rates on the market. You can earn 1.5 per cent per annum if you lock your money away for three years, or 1.25 per cent if commit to 18 months. This means a return of €914, and €372, over the respective terms of the products, on a deposit of €20,000.
However, withdrawal charges do apply if you need to get access to your money early.
While you will be allowed to make one withdrawal of up to 25 per cent of the account balance, during the term of the account without charge, if you need all your money then you’ll have to pay. According to a spokeswoman, this charge will depend both on the amount withdrawn and the term remaining on the account.
As an example, someone with €100,000 in an 18-month deposit account, earning interest of 1.25 per cent, would face an early access charge of €49.31, if they withdrew €10,000 after 12 months. This would reduce interest earned in the first year from €1,250 to €1,200.69.
As an alternative, you can invest with State Savings and you don’t necessarily have to keep your money there for the long term. As a spokesman says, it is possible to withdraw from the 10-year savings bond without paying a penalty. And the added advantage here is that your return – €3,200 if you keep €20,000 on deposit for 10 years – will be tax free.
To withdraw early, you have to give just seven business days’ notice. “If a State Savings product is redeemed before it matures, the initial investment in full will be repaid, plus any interest earned for the period,” the spokesman says.
And it means that if State Savings rates rise – and they are surely expected to – you can cancel your existing account and put your money into a new bond.
You will have to put in a bit of effort to get these rates; State Savings has a convoluted application process, which means downloading an application form and bringing it to your local post office, or sending it off for processing. Once this is done, you will then be able to buy products online, plus check your balance and withdraw funds to another bank account.
A spokesman says that in future, State Savings will focus on “further digital developments” to enhance the service offering for customers.
With PTSB, you can’t get a fixed-term account online – you’ll have to go into a branch to open one. And watch the small print. You’ll need to make a minimum lodgement of €5,000 to open such an account.
AIB has just announced an increased rate of 1.5 per cent (up a full percentage point) on its one-year fixed term offering for personal and business customers.
Regular savings
WINNER: Bank of Ireland
You can’t open this account just yet but, from the end of June, savers will be able to earn up to 1.5 per cent on monthly savings of up to €2,500 with Bank of Ireland.
It’s the bank’s newest product and the so-called Super Saver account is offering a special rate of 1.5 per cent for the first 12 months. After that it will default to the regular saver rate (1 per cent).
You can open an account with as little as €5 a month (no minimum savings applies). If you sign up for this account, you’ll also be entitled to a discount of €100 on home or car insurance (although of course you might find this cheaper elsewhere, discount or not).
Again, Bunq is an option here, paying 1.56 per cent on deposits. Elsewhere, the best you can expect is about 1 per cent on your regular savings.
Many of these accounts offer instant access, with no penalties for withdrawing during the year, while there is also flexibility in changing the monthly savings amount. EBS for example, offers one withdrawal per year, while AIB imposes no such limit. With PTSB, unless you’re a current account customer of the bank, you’ll have to give 21 days’ notice to withdraw from the regular savings account.
State Savings doesn’t offer a regular savings product per se, but it does have two offerings – instalment savings and childcare plus. Both involve you saving every month for a year. Your money is then invested for a further five years, which means that at the end of six years, you earn a total of 5.5 per cent on your money. So, €1,000 invested will earn €55 after six years. To earn the full benefit, you need to leave your money in for the full term; however, you can withdraw it, with any interest earned, with just seven days’ notice.
So, it doesn’t compare unfavourably with the other regular savings options, and interest earned is tax free, but it is still a bit more convoluted perhaps than needs be.
Keep moving
Once you move your savings, set a reminder to reconsider at the end of any fixed term as many offerings push you on to a miserable rate at the end of the term.
At the end of PTSB’s fixed term accounts for example, your money will automatically roll on to the variable interest rate – currently just 0.01 per cent – unless you notify the bank otherwise.
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This is also true of your typical regular savings account. With AIB, for example, your money rolls on to a rate of just 0.1 per cent at the end of a 12-month regular savings term.
Deposits abroad
With a sharp divergence in rates on deposits emerging on both sides of the Border, in days gone by it would have seen people rush from South to North to lock into higher rates.
AIB in Northern Ireland, for example, pays up to 5 per cent on regular savings of between £10 and £500 a month, and 3.5 per cent in a one-year fixed rate product.
While currency risk is an obvious issue, some people may be willing to stomach this volatility in return for better rates.
But what are the rules around this? One Republic-based reader rang AIB in Newry to inquire whether he could open a bank account there to avail of the far better rates, but was told he couldn’t.
We asked AIB what the reason for this was and was told that it was a Brexit-related issue. As a spokeswoman said: “Under Brexit legislation, unfortunately, non-UK residents are unable to open a UK bank account. This applies to all UK banks and is beyond our control.”
From January 1st, 2021, the bank stopped opening new accounts, or providing any additional financial services, such as overdrafts, to anyone who is not resident in the UK. So if you don’t have a UK address then (or a legacy UK account perhaps) you can’t benefit from these rates.
You can however, avail of rates offered by pan-European platforms such as Raisin.com.
At the time of writing, Portugal’s Banco Português de Gestão was offering a rate of 3.6 per cent AER. This would mean a return of €720 a year on a deposit of €20,000. It also has a six-month offering of 1.8 per cent which may be a good entry offering.
Another option is France’s Younited Credit, which has a rate of 3.25 per cent AER fixed for two years.
Remember, your savings may be subject to tax at a local level and you may also need to declare interest earned with our own Revenue.
In addition, you may wish to do some of your own due diligence on the banks offering deposits, via credit ratings, news reports etc, as well as ensuring that they are covered by their respective deposit protection schemes.
