Pressure on banks to increase the rates they pay savers intensified on Monday when Minister for Finance Michael McGrath indicated that he expects to see rate rises for depositors in the next few weeks.
It is also expected that Mr McGrath will give the go-ahead for increases in the rates paid to depositors in State-backed savings schemes, a move that would further increase pressure on the banks.
Ireland’s banks have been strongly criticised for failing to pass on European Central Bank interest rate increases to savers, meaning they are turning huge profits on depositors’ funds.
Speaking to journalists in Cork, Mr McGrath said: “I do anticipate that we will see increases in the weeks ahead in the rates of interest being paid by banks on certain savings and deposit accounts.”
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Mr McGrath said that these were “commercial decisions for the banks” but added that “the market conditions are such that such increases are justified… I certainly expect and anticipate that we will see improvements in the rates being paid over the weeks ahead.”
[ If Irish banks raise interest rates for savers, mortgage costs will increase tooOpens in new window ]
He noted that “While the banks have not fully passed on the increases in interest rates to mortgage holders, they have passed on even less of the increase in the ECB interest rate to savers and depositors.
“I do think that mismatch will now be addressed. We will see progress on that over the coming weeks,” he said.
Government sources also say that Mr McGrath is likely to approve a move to increase the rates paid to depositors in State-backed savings schemes, if the National Treasury Management Agency – which manages the State’s cash – proposes such a move next week.
Increasing the interest rates on State savings schemes managed by An Post would immediately increase competition with the banks for deposits, likely prompting a response by the banks. The State also offers prize bonds as a form of saving, though the interest rates are minimal at 0.35 per cent and were last revised in 2017.
Sources indicated that Mr McGrath also favours a revision to these rates.
Industry figures show that Irish banks have passed on to Irish savers just 7 per cent of the recent ECB rate rises, while 43 per cent of Bank of England increases have been passed on by British banks. European savers can also typically benefit from much higher rates than those available in Ireland.
[ McGrath puts pressure on banks to raise interest rates for savingsOpens in new window ]
Banks are still paying as little as 0 per cent on instant access accounts, while the best fixed-term products are offering about 2 per cent a year for accounts which require the deposits to be made for at least 18 months.
In response to Mr McGrath’s comments, none of the main Irish banks made any commitment to increase interest rates, but all instead pledged to keep them “under review”.
“We continue to keep our rates under review,” a spokesman for Bank of Ireland said. “We encourage customers to consider moving money from their current account to a savings or deposit account where they will benefit from interest payments.”
A spokesman for AIB said the bank has taken a “very measured approach in an evolving interest rate environment”.
“In the context of deposits, AIB insulated the vast majority of our deposit customers during a sustained period of European negative interest rates over eight years,” the spokesman said.
“In light of the evolving interest rate environment, we continue to keep our rates under review.”
A spokeswoman for Permanent TSB said: “We have no comment on that topic. As always, we keep our rates under review.”
