Interest on your money will drop to just 1.5pc, savers told
THE interest rates paid on savings left untouched in a bank for at least a year are to fall by half in the next year, savers have been warned.
Davy stockbrokers has forecast in a report that the savings rate would fall to 1.5pc for money locked away for more than a year.
The prediction comes as separate figures show that banks and building societies have reduced the interest rates they are paying on savings for five months in a row.
Money put in the bank in an account where it cannot be touched for a year was earning on average 3.35pc in September.
This is down from much higher rates paid in the previous month, new Central Bank data shows.
Intensive competition among banks for funds meant that a savings war erupted over the past few years, with banks competing with each other to offer higher interest rates.
But this has come to an end, with interest rates being cut now every month since the spring.
Davy Stockbrokers has advised savers to lock in now to any deposit accounts that offer high rates.
"We estimate that rates will continue to converge to international levels, and expect 12-month deposit rates to fall to 1.5pc by the end of 2013," said Brian O'Reilly, head of global investment strategy at Davy.
Savings rates are falling because banks need to get back to making profits, and are attempting this by paying less for deposits.
The rates being paid have also dropped because banks are finding it easier to raise money internationally now that the risk of the State defaulting on its debts has lessened, according to Davy.
Mr O'Reilly said: "Investors who can still access higher deposit rates may want to lock in favourable rates while they still exist."
Up to a few months ago, savers could get interest rates of 4pc if they were prepared to leave their money on deposit for at least a year.
Details issued yesterday by the Central Bank show that the rates are now down to 2.8pc.
Money that can be accessed immediately has an average rate of 1.53pc. This is down from 2.33pc since the start of the year.
Experts said an interest rate of 1.53pc was so low that anyone putting money into an account for a year would end up losing out, once inflation and tax were taken into consideration. Inflation is now 1.2pc, while any interest earned is taxed at 30pc.