Before the financial crash the return for savers on their deposits with almost immediate access to the money was running at around 3%.
This puts into context just how bad the current market is for people saving money with the banks.
Today, a saver would be lucky to get half that rate, and only on the condition that the money isn’t touched for 10 years.
As recently as three years ago, An Post offered a significantly higher rate. But the level of deposit interest rates offered by Irish banks has been on the wane for a number of years, as interest rates across the eurozone tumbled.
But not only are Irish savings rates among the lowest in Europe but the situation is getting worse, despite the fact that the ECB hasn’t touched the level of its key reference rates for years.
Indeed, average Irish deposit rates are down by a whopping 57% from a year ago. On average, the rate offered by the Irish banks is a miserly 0.03%. That means that a €10,000 deposit will return only €3 after a year.
In Spain, savings rates are a little better, at 0.04% and in France, they are much better, at 1.22%.
The trend remains downwards for the near future but Irish deposit rates will increase at some point. However, it will take two years, in my opinion, before savings rates rise by any noticeable amount.
I had a conversation with a client last week. The client had monies in several accounts and wanted to earn more interest by consolidating their savings.
They were prepared to look at accounts with up to three months’ notice to get better interest. I explained that, unfortunately, that rates offered on notice accounts are almost identical to demand accounts.
My suggestion was for convenience to stay with the lender because there was so little difference between the institutions.
However, when looking at the options for the client, to my surprise, I found that AIB alone had a huge 11 different options and Bank of Ireland offered 19 accounts.
The other thing to remember of course is that tax is paid on deposit interest.
Deposit interest retention tax, or Dirt, at 35% is payable on the annual interest.
That means a saver earning €30 in interest on a €100,000 deposit in a year would lose €10.50 to Revenue.
The maths means that the saver earns net interest at the non-princely amount of €19.50 a year.
In terms of those saving for a house, or a rainy day, the options aren’t much better. Of the two main banks, Bank of Ireland’s option is 1.35% a year in gross interest.
Putting aside €250 a month, the saver would earn gross interest of €40.50 over the year. AIB’s most attractive option is a regular saver account to save up to €1,000 a month. That account, which is also open to online savers, attracts a variable rate of 1%.
However, never exceed the limits the banks allow for savings: Amounts above the monthly threshold attracts the paltry rate of 0.01%. KBC Bank Ireland currently offers a very competitive rate for regular savers with a 2.5% variable annual equivalent rate.
The account, called “extra regular saver”, allows savers to put aside up to €12,000 a year.
EBS offers another competitive rate of 1.75% on a family savings account of up to €12,000 a year. Those two accounts are the only ones that beat the current rate of inflation in the broader eurozone.
You may be tempted to think that the relatively low savings rates would add up to good news for borrowers, including people taking out a mortgage.
However, it may not be a bad time to borrow money but, perversely, Irish banks charge some of the highest interest rates for mortgages in the eurozone.
The advice I would give a saver who has money is to try to secure a rate that, at the minimum, keeps pace with inflation, and preserve the real value of the savings.
That is difficult to achieve but there are some options for people who want to diversify. But watch out for fees. There is no point making 2% a year and losing most of it on fees.