Irish banks accused of 'window dressing' over small increases in saving deposit rates

Financial analyst Karl Deeter said banks on the continent offer significantly higher deposit rates with the same deposit protection as elsewhere in the European Union. Picture: iStock

Permanent TSB has followed Bank of Ireland to increase deposit rates, and AIB is expected also to raise its rates soon, but experts say the moves are “window dressing” and Irish savers are failing to get a fair deal from their banks.

PTSB said it was increasing the rates it pays savers by 0.25% across the range of its deposit accounts, while Bank of Ireland earlier this week said a new savings account will pay an initial interest rate of 1.5%.

Despite recent increases in deposit rates, banks have been slow to increase deposit rates since the European Central Bank started hiking interest rates last summer, but have instantly gained by increasing rates they charge for all types of business and household loans, including mortgage home loans.

Economist Austin Hughes said a rough rule of thumb is that every 1% change in deposit rates was worth around €500m for Irish households, given the billions of euro Irish customers hold on deposit. The estimate excludes the large amounts held in current accounts.

Askaboutmoney website founder Brendan Burgess said banks were paying too little for their deposits, and were generating income on the large sums Irish households are saving since the onset of the pandemic.

However, he warned that with inflation running at 7%, savers chasing higher returns for their deposits will inevitably still lose out.

People seeking out higher rates of deposits on the continent should also check on the quality of the customer services provided by the lenders there, he said.

'Pathetic gains' 

Leading industry expert Michael Dowling said increases in deposit rates were “window dressing” and the rises in deposit rates marked “pathetic gains” compared with the profits the lenders were generating from European Central Bank rate hikes.

The small economy, little competition, and inertia meant customers, although deserving better from their banks, were “playing into their hands”, Mr Dowling said.

Financial analyst Karl Deeter said banks on the continent offer significantly higher deposit rates with the same deposit protection as elsewhere in the European Union.

Irish depositors were “putting up with” low deposit rates, Mr Deeter said, adding that inflation meant savers were only working to reduce their losses.

A saver regularly putting aside €100 a month will get returns of as little as 0.75% to 1% from a range of Irish lenders, according to the comparison tools on the Competition and Consumer Protection Commission website. A lump sum deposit of €50,000 offering instant access will return between 0.01% and 1.56%, according to the website.

Central Bank statistics show the average interest rate Irish banks charge for new mortgage loans had increased to 3.54% by the end of March, up sharply from the previous month.

That brings the cost of the average new Irish mortgage lending back above the eurozone rate of 3.52%

MortgageLine managing director Stephen Hamilton, said he expected AIB to follow Permanent TSB and Bank of Ireland and raise deposit rates.