Irish people are Europe’s champion savers. Irish savings accounts were supercharged during Covid-19, growing even faster than those elsewhere in the EU. And since the Covid lockdowns ended, while savings growth has fallen back, it is still – in terms of money put into bank accounts – ahead of its pre-Covid level. By contrast, in many other countries the excess bank savings built up during Covid have been run down.
The Covid effect
The figures across the EU have been crunched by Tiernan Heffernan, an economist at the Central Bank. Writing as part of the bank’s Behind the Data series, he explores how savings were built up during the shutdowns. Deposit accounts swelled across many countries during the lockdowns. The paper attributes this to Government supports that maintained people’s incomes and the more prosaic fact that spending in many areas – holidays, going out and so on – were stalled for much of the Covid period. Some households may also have feared for their job prospects and decided to put more cash aside.
Already well-endowed Irish deposit accounts swelled further, with the annual growth rate of bank savings more than doubling from its pre-Covid level. The Central Bank calculated that the excess deposits – above and beyond what would normally have been expected – in the core Covid period of March 2020 to May 2022 came to €13.8 billion. Total household deposits now stand at about €143 billion. As Heffernan notes, this data says nothing about the spread of savings between different households and many financially stretched households may have had nothing to spare. But, overall, the stock of accessible cash that remains in bank accounts is remarkable. Covid savings have not, in large part, been spent.
The post-Covid experience
Internationally, Covid savings have dissipated, with US estimates suggesting that the spare cash is gone. Although a running-down of these bank deposits in Ireland might also have been expected, it has not happened. In fact, the growth rate in total deposits in the second half of last year was more than €500 million a month, higher than the pre-Covid pace of savings. Across the euro zone, excess Covid savings are gone, while in Ireland – adding in strong savings post Covid – the paper finds that households have close to €15 billion in deposits more than would have been expected based on pre-Covid trends.
The build-up in savings may reflect, in part, rising earnings and the increased size of the population, the paper finds. “However, neither seem to sufficiently explain the lack of usage of excess bank deposits in Ireland relative to the euro area.” Demographic trends may be playing a part, the report says – including Ireland’s relatively young population. But the evidence suggests the consumption that was withheld during Covid “seems to have been foregone entirely, rather than postponed”. The money is not waiting to be spent – it is just sitting there.
Where households save
In a separate paper, Heffernan looks at where Irish people save and finds that, remarkably, some 90 per cent of savings have generally been in current accounts or other low-interest accounts that are easy to access. In the euro area, in contrast, only about 55 per cent of savings are in overnight, immediately available deposits, with much more cash in longer-term accounts offering higher interest rates.
For many years, with ECB interest rates at, or near to, zero, the low level of deposit accounts on offer, even for those willing to put their money away for a period, were a factor in leading Irish people to leave cash in current accounts. Moving – and losing the access to cash – was not worth it and savings options here were generally less attractive than elsewhere in the euro zone.
Some Irish savers moved their money as interest rates rose after 2022 and savings offers available in Ireland – in terms of the headline interest rate – improved, but the proportion in low-earning accounts remains very high. And low is very low: AIB offers 0.25 per cent on its demand deposit account, for example.
This reluctance to tie up even some of their cash in higher-earning accounts is costing households. According to Heffernan’s calculations, Irish households earned about €532 million in interest in 2024, but this could have increased to €1,320 million if they had followed the same savings pattern as their euro area counterparts and put about half their money in higher-earning accounts. And over the past few years, higher-earning accounts have been available from Irish banks, the State and from smaller international players targeting the Irish market.
Nonetheless, most Irish people keep doing the same thing with their savings – leaving it in their current accounts – and keep paying the price. Traditionally, when Irish households invest in longer-term assets, it tends to be in property, rather than financial assets. With a lot of wealth tied up in housing – and thus unavailable to spend – keeping more cash liquid may thus make a bit more sense in terms of the overall financial balance.
Also, stung by the financial crash, households are cautious and have also been “saving” by paying down loans. Taking account of the total definition of savings, Central Statistics Office (CSO) data suggests the amount saved by Irish households is broadly in line with or even slightly below euro zone averages. It is in their holdings of bank deposits where Irish households stand out.
The lower deposit rates paid by banks here also take a toll on the return from savings. Heffernan calculates that had Irish savers got the same return on the money they put into interest-earning accounts as their EU counterparts, then they would have earned an additional €444 million in interest in 2024, not far off doubling what they did receive.
Offers going off the table
The problem now for savers looking for a better return is that many of the better offers are disappearing off the table as interest rates head steadily downwards, though with inflation falling too it should at least be possible to protect the purchasing power of your cash, or perhaps do a little more depending on what terms you are willing to accept.
On Wednesday, AIB announced a cut in its deposit rates from May 13th, with its one-year rate falling from 2.25 per cent to 2 per cent and its two-year rate from 2.75 per cent to 2.25 per cent. It also offers a regular-savers account of 3 per cent, subject to some terms and conditions, and this rate is also available from the other big Irish lenders.
What rate you can get for your money depends on a range of factors: whether it is a regular savings plan or a once-off deposit; the term you are prepared to lock the money away for; or the notice period for withdrawal. It depends on the size of the sum and whether you want to stick with your existing bank, or are prepared to move some cash to other Irish players or to euro zone banks whose accounts are available here either directly, such as Dutch fintech Bunq, or via services such as Raisin, the German savings platform that a range of euro zone banks use to offer accounts into the Irish market.
Savings are protected to the tune of €100,000 in Irish banks and in other euro zone banks under national legislation. Service levels and availability will also be a factor for some savers, particularly those less comfortable with online platforms and who prefer to have an Irish institution to deal with. Others will go purely with the best interest rate and international players have been taking an increasing share of the Irish market, even though their overall penetration remains low.
As with borrowing, competition for savings has suffered in Ireland in recent years and, sitting on large wads of deposits, the domestic banks have no real need to attract deposits to fund lending, though they do want to protect their customer bases and avoid people moving some of their business elsewhere. For now, however, as in the borrowing market, the big two dominate in savings, followed by Permanent TSB. The rest are, for now, niche players.
