As Ulster Bank shuts the doors of its branches for the last time in its 187 history, the question for many people is what real banking options they have left in the Irish market.
For sure, Bank of Ireland, AIB and Permanent TSB remain in the market but there’s not a lot of competition in a five-million strong market with just three banks. That is thrown into sharp focus by the current policy across all three on savings.
Central Bank governor Gabriel Makhlouf put in very clearly before an Oireachtas hearing this week, telling assembled TDs and senators that the banks currently have about €60 billion in surplus cash (from customers’ savings) stored with the Central Bank earning the current ECB rate of 3 per cent. On an annualised basis that means they are making around €1.8 billion and, as he told the committee, the bank have taken a commercial decision to use this money to subsidise mortgage rates rather than reward those setting aside the cash for savings.
That sort of thing just gets people’s backs up when they are considering their banking options.
There are fintechs like Revolut and N26 among others, which are assiduously courting Irish customers, but many are wary of using these online only operations as their main banks even though the services they offer are increasing.
That leaves the credit unions.
Credit unions have traditionally been low key community-based savings and loan institutions, staffed by volunteers and catering to an audience that might not have a formal bank account at all.
But that cosy image is changing. Not that credit unions are turning their back on their community roots, but the pressure of regulatory oversight and consumer demand means that they are now much more professionally run operations, with a rapidly increasing range of services.
That has involved a significant degree of consolidation, with around half of credit unions merging with larger rivals over the past decade. But they’re still member-owned organisations rather than profit driven businesses like traditional banks.
So could they fill the gap? Could you really use a credit union as your main bank?
Around 70 Irish credit unions offer current accounts to members. This includes services such as the ability to set up standing orders; direct debits; electronic payments into and out of your account; mobile/online banking; and a contactless debit card that works just as a bank card would. Some offer an overdraft facility.
Beyond that, they promise a straightforward account set-up process and a transparent fee structure.
These include a monthly account maintenance fee of €4. You will also pay 50 cent for every ATM withdrawal over and above the allocation of five free withdrawals each month within the Single European Payments Area (Sepa), which covers 36 countries in the European Union and beyond.
As usual, you will be charged for setting up or renewing an overdraft – €25 in this case.
If you are a member of one of the 70, well and good. If not, you’ll need to wait until the new legislation finishes its passage through the Oireachtas and is signed into law. The Bill is currently at the committee stage in the Dáil having commenced its journey in the Seanad.
What you won’t get is a credit card but you can apply for one elsewhere with a credit union current account.
And a mortgage could also prove problematic. Credit unions are now permitted by the Central Bank to offer mortgages but only in what they consider to be a very restricted manner, with strict limits on how much of their loan book can be for periods in excess of 10 years.
However, the Central Bank said recently that the sector had unused capacity to provide as much as €2.1 billion of mortgages and business loans.
Away from mortgages, credit unions do offer a range of personal, car and other loans at rates of interest running up to 12.8 per cent per annum.
Individual credit unions set their own loan interest rates but, as an example, Progressive, one of the largest, charges the 12.68 per cent on personal and home improvement loans, but 8.03 per cent on car loans, and promises approval in principle on loans up to €100,000 within 24 hours.
It offers mortgages from €40,000 to €500,000 at an annual rate of 3.56 per cent.
Legislation currently going through the Oireachtas should make credit unions even more attractive. The Credit Union Amendment Bill would allow individual credit unions to pool resources to streamline back office functions, allowing them to justify the provision of a wider range of services.
It will also allow a credit union that does not offer a particular service to refer their members to other credit unions that do. That means that members of any credit union should be able to secure access to a current account service offering features including Google Pay and Apple Pay.
Credit unions will also be able to get involved in loans made by rival credit unions.
On the savings side, things are a little trickier. Essentially, too many credit union members are saving and not enough are taking loans. The latest annual report from the regulator found that, on average, credit unions had lent just 28.4 per cent of their assets, well below the target loan-to-asset ratio of 50 per cent.
The end result is that most credit unions have imposed upper limits on the amount you will be allowed to save with them and this can be as low as €15,000.
The good news is that any savings you do have in a credit union are fully protected under the same Deposit Guarantee Scheme that protects bank savings up to the same sum of €100,000 in any one institution.
So will a credit union work as a main bank for you? It depends on what services you need and – at least until the legislation is passed – which credit union you become a member of.
If you are looking for basic current account services, it should be possible to find a provider. If your banking needs are broader, or you really want somewhere to save substantial sums of money, you may find the credit unions still have some way to go to meet your requirements. But they are certainly lobbying regulators hard to let them get there.
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