We are a nation of savers, yet we’re not very good at putting that money to proper use.
All told, Irish people have savings of about €160 billion, but well more than €140 billion of that is on deposit in accounts that offer interest rates averaging a miserly 0.14 per cent.
The interest earned on that eye-watering amount of cash sitting in low-yield accounts over the course of a year comes in at what sounds like a fairly hefty €196 million.
But if everyone who had their cash in a low-yield account were to move it to one that offered a rate of interest of just 1.4 per cent a year, the annual interest earned would climb to €1.96 billion.
Then if the savers of Ireland switched all that cash to accounts offering 2.8 per cent – and there are plenty of such savings accounts offering returns at that level – then the interest earned would jump to more than €3.5 billion.
Without labouring the point, it means Irish savers are potentially turning their noses up at returns of more than €3 billion every year.
Now, obviously, we are using a very black-and-white formula here and not everyone would have the capacity to move all the money they have on deposit to an account offering an annual return of 2.8 per cent. If they did then the domestic banks would be very quick to slash their interest rates.
But you get the idea. There is a huge amount of money resting in accounts in Ireland and most of it is not working hard enough for those lucky to be able to set aside a few bob.
It is not all savers’ fault mind you. Many of the State’s retail banks were slow to increase their deposit rates in line with European Central Bank (ECB) levels despite 10 successive hikes over an 18-month period up to the middle of last year.
Recent data from the Central Bank of Ireland shows that fixed deposit rates inched lower in November. Average interest rates on household deposits with a fixed maturity fell to 2.6 per cent, the lowest level in eight months. This was down from a 16-year high of 2.77 per cent, which was recorded last July.
While that is not good news for savers, it is likely to get worse in the months ahead with the ECB expected to cut rates repeatedly.
Since the start of the year, Bank of Ireland, Bunq, N26 and Raisin have reduced some savings and deposit rates.
Financial adviser Michael Dowling says prospective savers or investors have five key things to consider: their appetite for risk, their age, the aim of the investment, the time frame they are investing and whether they want to set aside money regularly or deposit a lump sum.
[ How can you make your savings work harder? ]
He says it is “extraordinary” that so much money is in low-interest accounts given that the returns offered by banks have increased in the past 12 months.
Dowling says that the returns offered by mainstream banks have risen over the past couple of years with more than 2 per cent available for a 12-month term investment. But only 6 per cent of savers have moved their funds to longer-term or better interest-bearing accounts.
Looking to the options, Dowling says that people are “comfortable saving with banks they know, be that right or wrong, but investing more with your own bank will remain the preferred choice for a lot of investors”.
An alternative are State Savings Accounts, which pay in the region of 3 per cent, but have the key advantage of no Deposit Interest Retention Tax (Dirt) tax. These are operated by the National Treasury Management Agency and available through An Post or online.
Revolut, Raisin, N26 and Bunq offer better returns than mainstream banks – a rate of 2.67 per cent is on the table from Bunq, for example – but, Dowling says, “the flow of funds to these banks is very limited”.
Then there are the credit unions. They do not give you interest on your investment, but they do pay a yearly dividend that is determined by each local credit union.
Daragh Cassidy, of price comparison and switching website Bonkers.ie, says that the ECB cut interest rates four times last year and is likely to do so again this year, starting as early as this month.
“While this is generally good news for mortgage holders and prospective first-time buyers, it’s not so great for savers as it means savings and deposit rates are going to start falling,” he says.
The best rate by the end of the year may be under 2 per cent
He says AIB and Bank of Ireland are still offering savers about 3 per cent as is the online savings platform Raisin. But if the ECB continues cutting interest rates then he does not expect such savings rates will be available for much longer. “The best rate by the end of the year may be under 2 per cent,” Mr Cassidy says.
And what would that mean to Irish savers? It would not be good news, that’s for sure.
If you had €20,000 in savings and placed it now in AIB’s two-year fixed account, which pays 3.02 per cent APR, then you’d get almost €1,230 in interest before Dirt tax at the end of the two years. It is not a lot for sure, but it is something.
It will be something else by the end of the year and if you wait before placing the €20,000 on deposit until next December when the best rate on offer could be as low as 1.5 per cent then “you’ll get barely €600”, Cassidy says.
“I’d really encourage people to do something with their savings before rates fall more,” he says.
“We’ve already seen cuts from Bunq, N26, Raisin and Bank of Ireland over the past few weeks. However, there are other options for people’s savings. And as interest rates start to fall people should consider them.”
What are those options?
Cassidy says people with a longer-term savings goal should consider placing their money into a life-assurance investment policy with the likes of Irish Life, Zurich or Aviva.
Those companies will invest in a mix of stocks, commodities, property and bonds, which might be a better option as it will provide the potential for higher returns.
“And using your savings to top up your pension is another good option. A lot of people keep savings for the proverbial rainy day. But there’s likely to be a few rainy days in your retirement, too, especially as most people are vastly underfunding their pensions,” Cassidy says.
There is also the option of using the cash to invest in a home retrofit to help reduce your energy bills and make your home more comfortable.
“You could also use the money to knock a chunk off your mortgage and save on interest. But there are pros and cons to this so weight them up carefully,” he says.
“If you have €200,000 left on your mortgage over 15 years and are paying a rate of 3.5 per cent, you’d save around €5,700 in interest over the remaining term if you paid €20,000 off the capital.”
Risk
Ralph Benson is the co-founder and head of financial advice at online advisers Moneycube. He, too, warns of the impact that falling interest rates at the ECB level will have on Irish savers and he says people should consider taking on investment risk if they are in search of medium-term investment growth.
“Remember what holding cash is really for: short-term costs, protection against shocks and giving you flexibility to take opportunities that come your way. What it’s not for is long-term growth in your wealth,” he says.
Many people in Ireland also continue to allocate “too much of their money to cash and property on a rainy island on the west of Europe”.
“It’s a smart move to build other pillars of wealth, like investments and pensions. They give you flexibility and a broader base of wealth,” he says.
“There are lots of ways to make your money work hard for you – from topping up your pension, to investing in diversified funds, to paying down debt. Holding cash probably isn’t one of them in 2025.”
While saving, ultimately, comes down to what you have and what you do, it could be argued more could be done to support Irish savers.
Inequitable and frustrating for consumers who want better returns on their savings
Rachel McGovern of Brokers Ireland certainly believes the State could do more.
“Consumers have, up to now, not been helped in this direction,” she says. “On the basis of policies that have existed here for many years it can be credibly argued that the State’s taxation system favoured lenders over consumers.
She says the tax system “disincentivises investment in better-value products. Currently exit tax rates are 41 per cent on any gains made on insurance-linked funds while gains made on deposits are subject to 33 per cent tax. This is grossly inequitable and frustrating for consumers who want better returns on their savings”.
She welcomes plans in the Programme for Government to make facilitate retail investments as part of the next budget and said it highlighted a commitment to take steps to “stimulate responsible investment”.
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