Savers in only one in eight regular savings accounts in Ireland are making any money as returns fail to match inflation.
A survey has found that more than half of all Irish regular savings accounts now fail to keep up with inflation. And that number rises to 88 per cent when deposit interest retention tax, or Dirt, is applied.
The study, from Bonkers.ie, shows that most savers are now losing money, as the return they earn fails to match or better inflation.
The news comes as KBC Bank announces plans to cut again the return it offers on a number of deposit accounts, putting savers at risk of seeing the “real” value of their money diminish.
Of the 25 accounts analysed by Bonkers, only 11 (44 per cent) offered a headline annual return above the official inflation rate of 0.7 per cent in the year to August 2019.
However, due to Dirt, which is currently 35 per cent and is levied on all deposit interest earned, a return of close to 1.10 per cent AER is actually needed for most savers to generate a real return on their savings once tax has been applied.
The Dirt rate will drop to 33 per cent in January but most regular saver accounts will still be costing savers money,
Only two accounts in the study provided a return above 1.1 per cent, and one of those – from KBC – will shortly be slashed to just 0.25 per cent. EBS’s Family account will then offer the best return, at 1.25 per cent a year. A third account, from State Savings, offers a tax-free return of 0.98 per cent AER, meaning this currently provides a real return for savers also – as State savings are tax-free.
The worst account identified in the survey is Bank of Ireland’s demand deposit account, which offers a zero return.
All of the other regular savings accounts in the study cost customers money, in real or inflation-adjusted terms, once tax has been applied.
Daragh Cassidy, head of communications at Bonkers.ie, said that, while inflation is expected to remain fairly tame in Ireland over the coming months, "even a small increase in the headline rate, due to an oil price spike for example, would mean savers becoming even worse off in real terms".
And, he expects returns on savings to remain “pitiful” for years to come.
Market conditions
Belgian bank KBC, which had been offering some of the keenest rates on the deposit market – at least to its own customers – is now set to cut rates it offers. From October 1st, the rate of return on its smart access demand account will fall from 0.15 per cent to 0.1 per cent and its 35-day notice account from 0.3 per cent to 0.2 per cent.
A spokeswoman for the bank said the cut in rates “reflects current market conditions” – and in a sign of just how poor the current environment is for savers, added that the rates “will still remain market leading in their individual categories”.
Overall, the bank’s best rate will now be available on its “extra” 12-month fixed-rate account, which will pay a return of 0.6 per cent – but only to those who have a current account with the bank and lodge at least €2,000 each month to it. For non-current account customers, the best rate available with the bank will be 0.5 per cent on a four-year fixed-rate product.
KBC Bank is also going to cut the rate it offers on its regular savings from November 18th. The move means that its 1 per cent rate on regular savings will no longer be available, as the bank abolishes the bonus rate it had offered its current account customers, of 0.75 of a percentage point. Instead, all customers will now only be able to earn 0.25 per cent on their regular savings of between €100 and €1,000 a month.
It’s a drastic turnaround for regular savers at the bank, who up until May were earning a return of 2 per cent on their regular savings.
Despite the low rates of return on offer, Irish savers continue to plough money into deposit accounts. Recent figures from the Central Bank show that Irish households now have a record €101.8 billion on deposit.
Irish deposit rates are among the lowest in Europe. Pan-European savings platform Raisin Bank hopes to shake up this market and offer rates in excess of 1 per cent when it launches here later this month.
“If you have a longer-term savings goal, placing your money into an investment policy, which will invest in a mix of stocks, property and bonds, might be a better option as it will provide the potential for far higher returns. However, you’ll be subject to taxes, fees and charges, so even here getting a half-decent return can be tough, unless markets are highly in your favour,” he said.
