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Saturday 23 June 2018

Deposit interest rates may finally be about to rise after years at rock-bottom levels

Half of people surveyed are of the view that they were saving less than they should in January, up from 45pc in December. (Stock Image)
Half of people surveyed are of the view that they were saving less than they should in January, up from 45pc in December. (Stock Image)
Charlie Weston

Charlie Weston

The proportion of people saving regularly has dropped. That probably comes as a surprise to no-one given the miserly interest rates banks are paying on deposits. The latest Bank of Ireland/ESRI Savings and Investments Index shows that there has been a fall in the percentage of people saving in January to 50pc, from 53pc in December.

Fewer people are saving, but consumers feel they should be putting more money aside. Half of people surveyed are of the view that they were saving less than they should in January, up from 45pc in December.

Banks are doing little to encourage a savings culture. The rates they offer have been consistently cut to the bone over the last few years, and are now so low some banks are paying 0pc. If you have €10,000 and you lock it away for a year, with no access to it, the best rate you will get will be from KBC Bank or Permanent TSB, both paying 0.5pc, according to price comparison site Bonkers.ie.

That will pay the princely sum of €50 after a year. When deposit interest retention tax (DIRT) is taken away you will be left with €31.50. RaboDirect, for so long one of the highest interest payers to depositors, pays 0pc.

So the reward for putting €10,000 away for a full year wouldn't even fill a petrol tank in Ireland at the moment. That means it is easy to understand why many consumers are feeling disillusioned. After all, it takes a lot of time and discipline to save up that amount of money.

Regular savers fare better, but still the rates are low. Put away €300 a month, and you can get 2.5pc from KBC Bank, according to Bonkers.ie. Your interest after a year will be €48.57, and just over €30 after tax. Bank of Ireland pays 0pc on its standard demand deposit account.

But the good news is that the interest frenzy may be at an end. The cynical might point out here that the rate cutting has run its course because rates are now so low they can go no lower.

Evidence for the fact that rates have gone as low as they are going to fall comes from Central Bank data that shows that deposit rates have not changed in months. Analysts at Davy Stockbrokers reckon the rate cutting has now been played out.

Wholesale interest rates are rising in the US and in the UK. European rate rises are likely next year. The prospects of rates being raised, in a bid to counteract inflation, is one of the reasons stock markets have been in turmoil lately.

But before rates rise, savers should shop around to find one of the few remaining accounts that represent decent value in this historically-low savings rate environment.

Sunday Indo Business

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