The €170bn 'resting' in Irish bank accounts
€1 in every €7 earned in Ireland is now being saved by households, underpinned by rising income and a fall in consumption.
Irish households are saving money at a rate not seen since the pandemic-induced highs of the early 2020s with recent data showing the savings rate hitting the highest levels since the middle of 2022. However, much of that money languishes in deposit accounts which offer little in the way of returns for customers as inflation erodes its value.
Recently released figures from the Central Statistics Office (CSO) shows that Irish households are continuing to add to their deposit accounts with the savings rate rising to almost 15% between July and September, up 2% from the previous quarter.
The current savings rate is also notably above the average of 13.1% since the beginning of 2023. It said that €1 in €7 is now being saved by households, which is being underpinned by rising income and a fall in consumption.
According to data from the Central Bank of Ireland, as of the end of October, the total value of household deposits stood at €170.3bn marking the first time in the history of the data series that this figure surpassed €170bn - an increase of €2bn compared to September and an increase of €11.3bn in the year to the end of October.
Even though all categories had a positive contribution, overnight deposits - which is money largely kept in current accounts - was the main driver, reporting a positive flow of €1.9bn during the month. The CSO said that savings can add to a household's overall wealth in the form of buying new homes, growing bank deposits, pension savings, and paying off debt.
Managing director of Cork-based financial planning firm Alpha Wealth Nick Charalambous said the reality is a lot of Irish depositors are “getting next to zero interest” on their savings with inflation eroding its value over time.
"Don't leave your money sitting dormant in the banks, the post office, credit unions,” he said.
Financial planner with Castle Capital Colum Carroll said inflation is the “real killer” of wealth and investing money, whether it be through a pension or other mechanisms, allows people to plan better for the future.
"People often see investments as being risky, but I think the narrative kind of needs to change around that again…Not investing can actually be even more risky. The risk of running out of money, the risk of not having enough money in the future, or losing purchasing power. They're the kind of real risks,” he said.
Mr Charalambous said a part of the reason for people keeping money on deposit or in savings is the fear of losing it and maybe a lack of understanding of the options that are out there for people to make their money work harder particularly over the medium to long term.
When looking into what to do with all their savings, Mr Charalambous said households should consider the timeframe for when they need the savings as this will dictate the appropriate financial vehicle.
In the short-term, which would be three years or less, he says that money should be kept on deposit.
"Most of us are now used to using Revolut. With their introduction of savings and deposit rates as well as investment accounts, there are millions upon millions of euros going into those types of savings,” he said, however, there are better returns offered by other non-Irish entities.
“Raisin would be my preferred one, and the main reason for that is that they use physical banks. With Raisin you can get a sort of a three month starter rate with Raisin themselves who are triple a rated institution at 3.1% gross, and typically the demand deposit rates with Raisin are in and around 2.15%,” he said.
After covering expenses and managing savings for the short-term, Mr Charalambous said people should be prioritising longer-term investments such as a pension.
"Unfortunately, we all live in the here and now, and it's very difficult for us to kind of visualize a scenario where we are basically benefiting from building up this very tax efficient investment vehicle, which is a pension,” he said.
In the medium term, which would be four years or longer, Mr Charalambous said there are investment options from the likes of Irish Life, Aviva, and Zurich which offer “very broad investment solutions”.
Mr Charalambous said all investments should be reviewed at least once a year.
Given the growth of Revolut, along with other financial applications, people have become a lot more familiar with investing themselves in stocks and exchange-traded funds (ETFs). In these apps, people can choose to manage their own investments with the money being easily accessible should the customer need to make a withdrawal.
However, Mr Charalambous warned that the options often offered in these apps are very concentrated and largely dependent on US stock markets.
"The Vanguard S&P 500 as an example, is the most common ETF globally, where most people start with and put too much exposure to. But it's a very narrow fund, because it's concentrated purely in the US, solely in 500 companies,” he said, adding that it is largely dependent on the growth of the Magnificent Seven.
“Yet we've seen gold has done spectacularly well this year. European equities have typically outperformed the US particularly if you take into account the dollar weakness that we've seen this year.” Growth in the US stock market is heavily concentrated on just a handful of companies nicknamed the Magnificent Seven - Google’s parent company Alphabet, Amazon, Apple, Meta Microsoft, Nvidia, and Tesla - which brings with it a lot of risk particularly if there is a falloff in the tech sector.
Nvidia, the most valuable company in the world, has seen its stock price surge over the course of the year as tech companies scramble to buy as many of its graphics processing units (GPUs) as possible to put into data centres to power their AI models. Nvidia alone accounts for over 7% of the S&P 500.
Mr Charalambous said the Vanguard S&P 500 is a “speculative type of investing” and the risk might be higher than they realise.
"People typically wouldn't realize the level of risk that they may be undertaking when they go into a fund like that,” he said.
Data from the Central Bank of Ireland shows the market value of Irish resident holdings of securities stood at just under €6 trillion (tn) as of the end of September - an increase of €353m over the quarter.
Of this total, Irish pension funds account for €51bn while household investments account for €28.26bn.
Listed shares accounted for €2.4tn of the total with the US being the primary destination for Irish resident investment in stocks accounting for 58% of the total value or €1.4tn. In comparison, the Irish stock market only accounts for 2% or €49bn, of the total money Irish investment in stocks.
The surge in share valuations in the US stock market is primarily being driven by the Magnificent Seven of which many are heavily investing in AI and its supporting infrastructure, particularly data centres. However, as of yet, there has been little return on this investment for these companies and if the so-called AI bubble bursts, this could spell trouble for Irish investors who have a lot of money wrapped up in US stocks.
In terms of households holdings of listed shares, it reached an all-time high during the third quarter reaching €11.5bn. However, this is largely due to the increase in the overall total market value which increased by around €700m in the quarter.
During the budget in October, former finance minister Paschal Donohoe announced a reduction in the investment exit tax from 41% to 38% from January 1 which makes it a little cheaper to actually invest in ETFs or other investment products. This rate could come down in the future potentially reaching the 33% rate set for capital gains tax.
Due to these tax changes, Mr Carroll said coming into 2026 it’s now “more advantageous” to invest than it has been over the last number of years because of the exit tax coming down.
“Hopefully that should come down even more,” he said, adding that even if it came down to 33% it would still be quite high compared to the US and the UK.
Capital gains tax is paid at 33% on the profits of the sale or disposal of certain access such as shares in a company or bonds.
However, an exit tax is paid on the profit from an investment in a fund - such as an ETF - and is charged at 38%. In addition, under deemed disposal rules, that tax is liable to be paid every eight years regardless of whether the asset is sold or not.
Given the lower rate of tax on holding single shares, rather than investing in broad funds, Mr Carroll said these rules do not "promote good investing”.
“You get 33% if you hold a single stock which is very risky, versus holding a tiny, tiny percentage of tens of thousands of stocks all around the world, you get taxed heavily on that,” he said.
"The best practice is, if you have the money now and you don't need access to it, now is the best time to invest,” he said.
"Like long term investing isn't essentially risky, it's more the risk of not having enough money in the future or when you need it. If you don't have enough money to pay for your children's education fund, or you don't have enough money to retire at 65 and you need to continue to work longer than you'd hoped, that's the kind of real risk,” Mr Carroll said.
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