Savers face more pain
Published 05/09/2014 | 02:30
The interest rate cut by the European Central Bank is expected to mean further reductions in the rates paid on savings accounts, writes Charlie Weston. Banks have been chipping away the interest they will pay savers for almost two years now.
Typical interest rates paid on savings accounts in banks are now less than half of what was being paid two years ago.
Frank Conway of the Irish Financial Review, the rate-cutting would continue.
"The news for savers is not so good. This is a market where many deposit institutions have already significantly reduced the level of interest they pay to, in some cases, fractions of a percent.
"On top of that, savers that do earn some interest income are liable for DIRT (deposit interest retention tax) of 41pc. Savers are now persona non grata," said Mr Conway.
Households have €91.25bn in savings accounts in banks, recent figures from the Central Bank show. But around €2.25bn has been taken out of deposit, or savings, accounts and put into current accounts to avoid having to pay bank charges.
Simon Moynihan of price comparison site Bonkers.ie said: "At the start of 2013 the Irish banks were seriously promoting their savings products. Now they almost seem to be an afterthought." He said AIB was promoting its Online Notice accounts in January 2013. At that time the Online Notice 7 account was paying 2.5pc for balances up to €10,000. Now AIB is paying just 1.3pc on the same account.
"This represents a fall of 48pcin interest paid by the bank, but since the DIRT rate went from 33pc to 41pc it's even more in real terms - last year you'd have received €167.50 in interest on €10,000 after DIRT. This year you could expect to get just €76.70.
The best demand deposit rate is from Permanent TSB at 2pc a year, with the best monthly saver rate from Nationwide UK at 4pc, Mr Moynihan said. He said further cuts in deposit rates were a certainty.