Irish savers needlessly give banks almost €1bn each year. Here’s what they can do about it

What would you say if we told you that Irish people are needlessly giving Irish banks almost €1 billion every single year that they don’t need to give them?

You’d no doubt shake your head and accuse us of trading in clickbait but, hand on heart, we’re not. While €1 billion is a truly staggering sum, it is not a millions miles away from the estimates suggested by the Central Bank in this regard earlier this year.

And no one would ever accuse the Central Bank of clickbait.

So how are we wasting all this money and why?

Irish savers needlessly give banks almost €1bn each year. Here’s what they can do about it

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The how is perhaps easier to explain than the why.

Irish households currently have savings of about €160 billion – which is pretty impressive all things considered.

What is less impressive, however, is the fact that around €140 billion of the money that we have on deposit is currently resting in accounts that offer interest rates averaging less than 0.2 per cent. Many offer no interest at all.

The irony is that while the people putting their hard-earned money into the banks are getting little or no return, the banks are lodging any of those savings that they are not lending out with the Central Bank, where they are getting paid the European Central Bank deposit interest rate of 2 per cent on your money – or more than 10 times what they are offering you.

Not only are we not getting any money back for the money we have on deposit, we are actually losing money on it every single year as a result of inflationary pressures.

If inflation runs at a fairly modest 2 per cent over the next year, the €100 you have on deposit in a current account offering a zero rate of interest will be worth €98 this time next year – and that is not including the bank charges you may have to pay on that cash too.

According to a Central Bank report from earlier this year, Irish households have “long held a very high proportion of their deposits in current accounts or other easy-to-access but low interest account types”.

The share of our money in overnight deposit accounts has been close to 90 per cent in recent years, “making Ireland an outlier in the broader euro area, where overnight deposits have a share of around 55 per cent”, the bank’s report noted.

The Central Bank added that the lower interest rates offered by banks on deposits “and the likely related reluctance of Irish households to lock their savings into longer-term accounts with more restrictions on access, has significant consequences on households in terms of interest earned”.

The report noted that the amounts in question “are difficult to quantify exactly”. But it made a decent fist of it all the same.

It estimated that Irish households earned approximately €532 million in interest in 2024. However, if those households put their deposits in higher interest accounts at the same level as the euro zone average, they “would have earned €1.32 billion in bank deposit interest in 2024, or €788 million more than the actual estimate”.

And that is a fairly sober estimate. With our more sensationalist hat on, we reckon that if the €140 billion that is earning little or no interest was moved to accounts offering rates of 2 per cent or more, Irish consumers could see their money earn well over €2 billion more than it does.

Although suggesting that might well be clickbait, so we’ll stick with the official figures!

The bottom line is that there is a staggering amount of money resting in accounts in Ireland and most of it is not working hard enough for those lucky to be able to set aside a few bob.

And despite the passage of time, things do not appear to be improving. Even the banks can scarcely believe their good fortune.

Earlier this week in a trading update AIB announced that customer deposits rose by €4.4 billion – or 4 per cent – between December and September. It said it sees full-year deposit growth amounting to 4 per cent – double the rate executives had expected at the start of the year, and up from the 3 per cent forecast in August.

So we are leaving more money on deposit with our banks than they thought possible at the start of the year and they are making more money off it as a result.

Poor choices

So why are Irish savers so wasteful?

It is impossible to say for sure but, according to a survey published last year by bonkers.ie, around one in four people do not know there are better rates out there than the negligible rate they get from their bank.

Then there are the 10 per cent who said moving money from one account to another was too much hassle. A similar percentage said they had not looked for better rates because they had no money to save – something that will chime with a lot of people.

A further 25 per cent said they were concerned about putting their money into an account where they could not readily get access to it.

The banks, of course, are not helping. Irish savers have been offered rates that could best be described as miserly for a long, long time. Those who have money on deposit have been getting some of the lowest returns in the euro zone over the last decade or so.

A recent survey from fintech Raisin suggested that the average overnight deposit rate offered in Ireland was 0.13 per cent compared with 0.55 per cent in Germany.

Options

So what can be done?

Rates change regularly and the likes of bonkers.ie or the Competition and Consumer Protection Commission site are worth checking out to see tables of what is on offer.

The good news is that the returns offered by mainstream banks have risen over the past couple of years, with a rate of as much as 3 per cent available for a 12-month term investment, although rates can and do fall after the first year and there are terms and conditions that apply.

Another avenue familiar to many is the multiple State Savings Accounts, which come with the added advantage of being exempt from Deposit Interest Retention Tax (DIRT) that otherwise sees 33 per cent of any interest you do earn hoovered up by the State. Someone looking to invest in the long term would do well to at least look at the options on offer at statesavings.ie.

The fintechs are ever more popular and offer savers a broader array of options, with Revolut, N26, Bunq, Raisin and Trade Republic frequently offering more attractive returns and easier access to deposits than pillar banks. Raisin for example has a rate of 3.1 per cent for new customers – with the rate guaranteed for the first three months.

The interesting thing about the last two are that they offer their customers access to interest rates on offer from banks across 12 different European countries.

Deposits with Raisin are protected up to an equivalent of €100,000 per depositor and bank under the European Deposit Guarantee Scheme – the same as you get with the mainstream Irish banks – while online brokers, such as Trade Republic, offer the same level of deposit protection under the same scheme.

Then there are the credit unions. They do not pay interest on investments but instead pay dividends determined by each local credit union.

They are also among the most beloved institutions in Ireland and have been helping people who might otherwise struggle to borrow money for generations.

You can contact us at OnTheMoney@irishtimes.com with personal finance questions you would like to see us address. If you missed last week’s newsletter, you can read it here.