AIB interest rate cut is a major blow to savers
Tuesday January 08 2008
The decision by AIB to cut the interest rate it pays on its regular saver rate from 7.1pc to just 4pc is a major blow.
It comes just as consumers in Ireland were becoming highly enthusiastic savers.
The country's biggest bank admitted that around 300,000 people had opened regular saver accounts to benefit from the high interest rate. This figure was more than the amount who opened SSIA accounts with the bank.
But from midnight on December 31 last, the 7.1pc rate plunged back to 4pc as a "price promise", given by AIB to maintain the rate up to the end of 2007, ran out.
AIB had promised to pay regular savers at least the European Central Bank rate (currently 4pc), plus 2.5pc until January 1 this year.
There are now just four banks paying 7pc or more to regular savers -- Anglo Irish Bank, First Active, Halifax and EBS Building Society. These accounts do not take lump sums.
Banks have been losing money on regular saver accounts, which pay in excess of 7pc, but red-hot competition in the banking market had prompted them to offer the high rate to regular savers.
Personal finance experts had warned that the high rates would not last as banks were losing money on them in a bid to gain market share.
AIB's decision to drop its attractive regular saver rate comes just as a new survey shows that the majority of people expect to save the same this year as they did last year.
And 13pc expect to save more this year, according to the survey conducted by Behaviour & Attitudes for Irish Life.
One of the best ways to cope with higher food prices, rising oil prices and higher motoring costs is to have a ready stash of cash saved up.
At least consumers can cheer the fact that there is keen competition emerging in the lump-sum saver market.
This is important as it is estimated that some €44bn is sitting in demand deposit accounts earning little or nothing in interest. This is surprising given that rates as high as 4.5pc are available in the market now on demand or instant-access accounts.
Northern Rock, damaged by last year's run but still guaranteed by the British government, is paying 4.5pc, while Ulster Bank has an online account paying 4.4pc. If you want to put your money away for a longer period, then Anglo Irish have just introduced a one-year fixed rate of 5pc for amounts over €1,000, with no upper limit.
