Tuesday 6 December 2016

Charlie Weston: Yet again the bankers have turned our world upside down

Published 28/08/2016 | 02:30

Interest rates are at historic lows (Stock picture)
Interest rates are at historic lows (Stock picture)

Our understanding of what a bank does has been turned on its head now that some of them are charging customers to deposit money with them.

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What next? Will they pay us to take out a loan instead of charging us interest?

Not likely. All the same, banking is a topsy-turvy world these days - and it continues to be an expensive service for consumers.

The decision by state-rescued Bank of Ireland to start charging corporate customers with more than €10m on deposit an interest rate of 0.1pc from October has been described as a 'crossing the Rubicon' moment.

When Julius Caesar's army's crossed of the Rubicon River in Italy in 49BC it was considered an act of insurrection and treason. Julius Caesar uttered the phrase "alea iacta est" - the die is cast - as his army marched through the shallow river.

Consumers in this country are used to getting a drenching from the banks, but we never expected them to upend a core principle of banking - by opting to charge customers for their deposits.

Ulster Bank began imposing negative interest rates on a number of its corporate customers last year, in a move that went under the radar.

The moves to impose negative interest rates on corporate customers come months after the European Central Bank (ECB) rate hit 0pc, and the ECB later told banks it would charge them 0.4pc to hold their cash overnight.

The fear now is that personal customers could be the next to be penalised for saving with a bank. Savers are already suffering from record low interest rates on deposits, and a tax rate of 41pc on any return.

Interest rates for personal banking customers have been falling for some time, with the best rates available for a regular saver at around 3pc. Interest rates on State Savings schemes have been repeatedly slashed.

The one certainty is that deposit rates will continue to fall.

But banks will be very reluctant to move to negative interest rates for personal customers. They know that, given the €64bn taxpayer bailout of the banks, charging ordinary people to hold their savings would be a step too far, even for empathy-deficient bankers.

Although rates are very low, there are still some reasonable returns to be found.

KBC is offering 3.5pc on its Regular Saver Account to current account holders. EBS will give a 3pc return under its Family Savings Account. For lump sum savers, Bank of Ireland is offering a 1.25pc AER (annual equivalent rate) and a 9.05pc gross return to those willing to lock their money away for seven years.

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