'More to go' when it comes to increases in saving deposit rates

Households likely to be put under pressure again as the European Central Bank is poised to introduce another 25 basis points interest rate hike this week

Banks have been slow to raise deposit rates since the ECB started hiking interest rates last summer, but have instantly gained by increasing rates they charge for loans.

AIB and EBS increased their interest rates for deposit holders to 2% as cost-of-living pressures persist, but an industry expert says banks could still do more to help savers.

Michael Dowling of Dowling Financial said the interest rate increase from 1% to 2% for deposit holders by AIB and its subsidiary EBS will force Bank of Ireland and Permanent TSB to follow suit.

“I would suspect that they won't want to give AIB a lead on them because they won't want their big competitors having that advantage out there,” said Mr Dowling.

“While it's a welcome increase, there's still more to go,” he added.

Mr Dowling also said while deposit holders will get a better return on their savings following the hike, households are likely to be put under pressure again as the European Central Bank (ECB) is poised to introduce another 25 basis points interest rate hike this week to drive down stubborn inflation, eventually hitting mortgage customers.

“All tracker mortgage customers are going to see their rates increase in line with that and there may be changes with variable rates, and particularly in the case of AIB because their variable rates are cheaper than Bank of Ireland and Permanent TSB,” said Mr Dowling.

So we may on one side see deposit rates rising, but we may see mortgage rates rise for variable rate customers with AIB.” 

Banks have overall been slow to significantly increase deposit rates since the ECB 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.

Permanent TSB recently announced it was increasing rates it pays savers by 0.25% across the range of its deposit accounts, while Bank of Ireland last month said a new savings account would pay an initial interest rate of 1.5%.

AIB forecasts profit to reach €3bn for this year, which is partly being generated by charging higher rates to mortgage holders as the ECB tightens monetary policy.

“European banks are profitable as well so if they can afford to offer higher rates, there's no reason why the Irish banks can't respond and offer better rates to deposit holders,” said Mr Dowling.