With €156bn on deposit Irish households continue to pass up on better interest rates
The Central Bank of Ireland reports that the average interest rate on a fixed-term deposit account is now 2.68%, up from 2.51% at the start of the year
A quarter of us don’t know that there are better savings rates out there right now, while 10% say it’s too much hassle to go moving money about. A further 8% say they haven’t sought better rates as they have no savings goal while 25% of people say they don’t want to lock their money away for a long period of time.
That’s according to new research from Bonkers.ie in conjunction with RED C.
Irish households currently have a record €156bn on deposit with Irish banks. However, almost 90% of this money is still resting in easy-access demand deposit accounts that pay interest of 0.13% on average. This compares poorly to other European countries, where around 50% of savers have placed their money into higher-yielding fixed-term accounts.
The research comes as the Central Bank of Ireland reports that the average interest rate on a fixed-term deposit account is now 2.68%, up from 2.51% at the start of the year, and almost 0% just two years ago. However, higher rates of 3% and above are available from the likes of AIB and BOI and through the online savings platform Raisin.
Moreover, in recent weeks, online-only banks such as N26 and Revolut have launched instant-access savings accounts with rates of up to 4%.
"Most people have worked long and hard for their savings,” says Daragh Cassidy of Bonkers.ie, “so they should ensure their savings work as hard as they do. There are now plenty of options for people’s money from a range of providers, in both fixed-term and instant-access accounts, so there is little excuse for anyone to leave their money resting in an account where it’s earning almost nothing in interest.” If you have a longer-term savings goal, then placing your money into a life assurance investment policy with the likes of Irish Life, Zurich or Aviva could be a good option as it will provide the potential for far higher returns.
You can usually contribute to one of these policies, often referred to as managed funds, from as little as €100 a month and your appetite towards risk will determine what type of fund your money is invested in. Alternatively, you can invest a lump sum starting from around €10,000 or so.
Those with a lower risk appetite will usually be recommended to put their money into a fund that mainly invests in bonds and a small percentage of stocks, while those who are prepared to take more of a risk with their money can choose funds that invest mainly in stocks, property and commodities like gold and oil. However you'll be hit hard with taxes, fees and charges, so getting a half-decent return can be tough unless markets are highly in your favour. And markets can fall as well as rise, so there is a risk that you could end up with less than you started.
For the more risk-averse, check out the range of state savings products. The main advantage of investing with the state is that you won’t have to pay DIRT (currently 33%) on any returns that you make. The downside is that the rates on offer are pretty meagre.
Daragh Cassidy explains. “The ten-year National Solidarity Bond on sale at the moment offers a return of 2.01% interest a year or 22% in total over the entire ten-year term. Meanwhile placing your money in a five-year Savings Certificate will get you 1.74% a year or 9% over the five-year term.”
But with inflation still at high levels, your savings are unlikely to make a return in 'real' or inflation-adjusted terms. These returns are nonetheless still better than what you'd get on many savings accounts right now, with the aforementioned bonus of not having to pay tax on your gains.
Another option? Pay down debt. While having a rainy-day fund makes sense, you’re usually better off using any savings you have to get rid of debt as the interest you’ll be charged on loans will usually be far higher than anything you’ll earn on your savings. Paying 20% interest on a €3,000 credit card debt makes little sense, for example, if you also have €3,000 in savings that is only earning you 2% interest and which could be used to fully clear your card balance.
We now also have options beyond these shores. Ireland has among the worst rates for savers in Europe. But things aren't quite so bad on the continent. And one bank — Raisin — is making it easy for savers here to access the higher rates on offer elsewhere.
Raisin pitches itself as the 'online marketplace for savings across Europe' and allows Irish savers to easily avail of the higher deposit rates on offer in Europe by signing up to its online account.
Signing up is relatively simple and only requires one online registration. From there, customers can easily choose from numerous savings accounts from banks all over Europe and manage their accounts entirely online too.
Online-only banks like Revolut and N26 are also well worth checking out. Both now offer easy-access savings accounts.
“Revolut offers 2% for customers with a standard account and up to 3.49% for those with an 'Ultra' subscription,” says Cassidy. “N26 offers 2.80% for customers with a standard account and up to 4% for those with a top-tier 'Metal' subscription.”
With both banks, your savings are protected up to €100,000 under the deposit guarantee scheme. There’s no minimum deposit amount or any set-up fees. And you can access your money or top up your savings whenever you like quickly and easily within the banks' slick mobile apps.
If this is an option for you, locking your money away for longer nearly always secures a higher return. In Ireland, the rates on some demand deposit accounts are as low as 0.10%. But the rates on fixed-term accounts are up to 3% or more.
In the same vein, you could also think about topping up your pension. Most experts agree that you need a pension of at least half your pre-retirement income in order to live comfortably in your golden years. But two-thirds is best.
The average full-time wage in Ireland is around €48,000 - this means you'd need an income of at least €24,000 in retirement if not more. The current maximum state pension is just over €14,000 a year, which means most workers can expect to experience a significant drop in their living standards unless they make their own provisions for their retirement years. Plus there's no guarantee that the state pension will even be around in a few decades' time as it becomes increasingly unaffordable due to an ageing population.
Saving into a pension is one of the most tax-efficient things you can do with your money. You won't pay any tax on your contributions (up to certain limits) while your savings will grow tax-free. You can also draw down a tax-free lump sum of 25% of your pension pot upon retirement (up to a limit).
So rather than keep your money in a low-yielding savings account for a rainy day — look at investing it in a private pension— as you can be sure there'll be a few rainy days in your retirement years too.
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