Tuesday 20 March 2018

Taking an interest in your bank's deposit rate

THE time has come to end the great interest rate cover-up.

Households that can afford it have responded to the uncertainty of the economic situation by furiously stashing cash in bank, building society and credit union accounts.

But the problem is that most people are not aware of what interest rate they are getting.

Some €97bn belonging to households is sitting in deposit, current and credit union accounts, according to Central Bank statistics.

But a large chunk of this money is earning little or nothing because many of the interest rates offered by banks in particular are derisory.

Sure, there are good deposit interest rates to be had at the moment, but the lion's share are very low.

People get sucked into opening an account because they are offered an initial juicy interest rate. But after six months or a year, the rate drops to some pitiful level.

Then there is the fact that people do not want to lock money away for any length of time, so they stick their cash in a demand deposit account with rates as low as 0.01pc.

With a demand account you can get at your cash whenever you want to, but the flip side of this is you will earn little or no interest.

With €5,000 in a demand account at 0.01pc, you'll earn the not-very-princely sum of 50c interest in a year. And that is before tax.

Simon Moynihan, of comparison website Bonkers.ie, estimates that some €37bn of household savings are in such accounts.

This situation is not helped by the fact that most statements are sent out with no mention of what interest rates are being paid.

Nor are credit unions off the hook on this one. They do not calculate their dividend, or interest rate, until year-end. And a dividend can only be declared based on profits or surplus. If there is no surplus there is no dividend.

This means that it is impossible for savers to know what dividend or interest rate they will get until their credit union's financial year end.

Savers are being kept in the dark. Deposit-taking institutions should be required, by law, to state exactly what interest rate is being paid. This is particularly important as payouts continue to plunge.

It is worth noting that Irish Nationwide pays 3.25pc for amounts up to €20,000 on its deposit account. And it is hard to beat the An Post savings bonds and certs, which are tax free and pay high interest.

Irish Independent

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