Savers hit as ECB vows to keep record-low interest rates for years
SAVERS are facing a fresh attack on the interest they earn on their money deposited in banks.
It follows a new commitment from the ECB to keep eurozone rates at record lows for at least two-and-a-half years.
People with money on deposit are already nursing losses of up to €3,500 a year from repeated rate reductions and higher savings taxes.
Head of the ECB Mario Draghi pledged to keep rates at their current level until the end of 2016, if not longer.
Just after Mr Draghi made the interest rate promise, Ulster Bank said it was again cutting the interest rate it pays savers on a string of accounts.
The bank blamed the low ECB lending rate for the move.
Some 375,000 howeowners with tracker mortgages are big winners from Mr Draghi's comments as they can look forward to rock-bottom interest rates for the foreseeable future.
But savers are likely to question the value of their investments.
The rate reductions at Ulster Bank follow moves by AIB, Permanent TSB and KBC Bank in recent weeks.
And financial experts are predicting that Bank of Ireland will again cut its savings rates.
Average savings rates are now down to below 1pc across the market, according to Central Bank data.
At the start of the downturn in 2008 rates above 5pc were being paid by banks desperate to rake in savers' cash.
And the tax on interest earning on savings has doubled from 20pc in 2008 to 41pc now, according to Simon Moynihan of price comparison site Bonkers.ie.
This means that a couple lucky enough to have €100,000 in savings would have earned €4,000 in interest after paying DIRT (deposit interest retention tax) just before the financial system blew up.
Now, low rates and a high DIRT tax mean the same amount of money will get a return of just over €500 if deposited in a bank.
The saver couple is suffering a loss of close to €3,500 a year from the low-interest rate environment and a doubling of DIRT.
Experts said saver interest rates would now keep falling.
ECB interest rates have come down from 1.5pc in the summer of 2011 to 0.15pc this month.
Mr Draghi indicated that the European Central Bank's interest rates will probably remain low for at least another two-and-a-half years.
"We have prolonged banks' access to unlimited liquidity up to the end of 2016. That is a signal," the ECB president said in an interview published in Dutch newspaper 'De Telegraaf'.
"Our programme in support of bank lending to businesses will continue for four years. That shows that interest rates will remain low over a longer period. But thereafter they will increase when the recovery will firm up."
Emmet Gaffney, banking analyst at specialist bank Investec, said Bank of Ireland would drive deposit rates lower despite having some of the least attractive interest rates.
He said saver rates would keep falling.
But tracker mortgage holders are set to bank thousands of euro in savings after the European Central Bank promised to keep the interest rates at record lows for years.
Over the the last six years it is estimated that tracker holders have saved around €6,000 a year due to the rate reductions.
Tracker mortgages here are among the cheapest in the world and the low interest rates are set to stay in place until the end of 2016.
Every time the ECB cuts rates, tracker holders see the rate they pay go down.
Their mortgage contracts state that they pay a set percentage, usually 1pc, over the ECB key lending rate. But some are set at 0.5pc over the ECB rate – meaning their mortgage rate is just 0.75pc.
There have been six cuts in interest rates since Mr Draghi took over at the ECB.