Irish savers are now earning as little as €1 a year on deposits of €10,000 - and may be set to earn even less, following last week's move from the European Central Bank to cut its main rate to zero.
Demand rates, or the rates banks pay depositors for instant access to their accounts, have already fallen considerably in recent weeks, with Bank of Ireland, Ulster Bank and Permanent TSB all just paying 0.01 per cent on instant access accounts. This means that if you keep a deposit of €10,000 in such an account you will have earned just €1 after a year. AIB is marginally better at 0.05 per cent, while KBC Bank pays a comparatively generous 0.3 per cent.
But these rates may fall further given the ECB’s move last week. AIB for example, says it has not passed on last week’s ECB rate cut to depositors, but it will keep its rates “under review”.
Indeed John Cronin, analyst with Investec, says that he would "expect rates to remain zero bound at the lower end," noting that the overall outlook for term deposit rates is also down, a trend which will be "exacerbated" by the ECB's cuts.
Central Bank figures published on Friday showed a continued decline in deposit rates, with rates on outstanding deposits dropping by 4 basis points to 0.98 per cent, and while new business rates rose by 2 basis points, the rate remains very low at just 0.23 per cent.
Meanwhile AIB continues to offer German savers a return of 1.2 per cent on 12-month deposits, through online platform Weltsparen, and has become a “bestseller” on the site. The best rate it offers its Irish savers is just 0.5 per cent, or 0.6 per cent via its EBS subsidiary.
Negative rates
However, while rates may yet go to zero, negative rates are unlikely to be on the horizon for Irish savers.
Last week the European Central Bank cut its main refinancing rate to zero, in a move which surprised the markets, and saw it join an elite club: Five central banks are now in the negative rate club including the ECB, Bank of Japan, Denmark's National bank, the Swiss National Bank and Sweden's Riksbank.
While European savers have been hit by negative rates only at the margins - Swedish depositors for example, have been charged 0.35 per cent on their savings since last July - it’s unlikely that rates will go below zero for Irish savers.
Indeed AIB chief executive Bernard Byrne earlier this month ruled out negative rates asserting that in the short term, "it wouldn't be something we would consider or contemplate from a customer point of view".
