Irish households holding on to billions in covid lockdown savings but earning low interest

Central Bank analysis finds Irish people missed out on €800m in interest last year 

The covid lockdowns meant Irish households saved an extra €13.8bn. Picture: Denis Minihane.

Like a child holding onto their Communion money, Irish households are still holding onto the billions in savings they made during covid, while households across Europe have spent their.

A research paper published by the Central Bank of Ireland has found little evidence that Irish consumers are spending the savings they made, and households here continue to save at a higher rate than they did before the lockdowns of 2020 and 2021.

On top of this, households' preference for shorter-term, more accessible deposit account cost them almost €800m in unearned interest in 2024 alone.

Bank deposits grew rapidly during covid in Ireland and across the world, driven by Government financial support measures and the lockdown themselves, which saw global aviation shut down along with bars, restaurants and other forms of entertainment, cutting off ways for households to spend their income.

An empty St Patricick's St during the covid lockdown. Closed bars, restaurants and shops meant consumers saved billions, a trend that continues today.

Between March 2020 and May 2022, Irish households saved an extra €13.8bn. But since then, savings have continued to rise, increasing at a monthly average of €514m, a rate greater than pre-covid levels.

If Irish households had saved at the rate they did before covid, they should have added €27.9bn to the stock of household deposits since March 2020. Instead, they have added €42.7bn over this period.

Euro area households would have accumulated just over €1,600bn at pre-covid levels, but in the end added just under that.

"It appears, therefore, that on average, euro area households have now consumed the entirety of these liquid excess bank savings accumulated during covid, whereas Irish households still hold €14.8bn in deposits more than we would have expected based on trends prevailing immediately prior to the covid-19 period," the report states.

The analysis, carried out by Tiernan Heffernan of the Central Bank, found that in some countries, it does appear that excess savings have now reduced or have even been eliminated, with an estimate from the San Francisco Federal Reserve suggesting that pandemic excess savings remaining in the US economy have now turned negative.

Why Irish households are holding onto these savings is not clear. The analysis notes that average earnings have risen 25% compared to the pre-covid period, and our population has increased by 7% in the same period.

However, wages have risen by a similar amount in the Euro area. The analysis suggests the lack of savings drawdown seems more reasonably attributed to behavioural decisions of Irish households. Previous analysis found that much of the spending by Irish consumers that was withheld during covid seems to have been foregone entirely rather than postponed. 

Separate research carried out by Mr Heffernan found that while we are holding on to savings, Irish households also have the highest proportion of their bank deposits in overnight accounts earning low interest out of any country in the euro area.

Higher bank deposit rates, as a result of the ECB’s interest rate increases from mid-2022, have slowly begun to influence households into moving their money into longer-term savings accounts but they still lag significantly behind their euro area peers.

This lower interest rate being offered by banks on deposits and a reluctance of Irish households to lock their savings into longer term accounts means has a significant impact for interest earned. It is estimated that households earned approximately €532m in interest in 2024 last year.

However, the Central Bank found that if these deposits were held in higher interest-earning accounts, they could have earned €1.32bn in interest.