Savers losing out due to low rates
THE interest rates being paid to many people who have money in savings accounts are now so low that they are barely keeping pace with inflation.
Cuts in the rates being paid by banks and building societies over the last few months have left consumers nursing losses when price rises are factored in.
Savers seeking a return must now lock any cash they have into long-term deposit accounts, which pay higher rates but require a notice period before allowing withdrawals.
Demand or easy-access deposit accounts allow savers to withdraw their money immediately.
Households have around €92bn in savings as the downturn has pushed them into stashing away any spare cash.
The average demand deposit account is now paying just 1.79pc, information issued yesterday by the Central Bank shows. But inflation figures show prices rose by 1.6pc in the last year.
And when deposit interest retention tax (DIRT) of 30pc is factored in, savers with funds in demand deposit accounts are losing money in real terms.
The interest rates being paid on demand accounts are falling fast as banks have stopped competing to attract funds.
Term or notice accounts pay higher interest rates but these are also coming down, the data from the Central Bank shows.
The average interest rate on term deposits is now 3.41pc, after falling during the summer.
For money locked away for two years or more, the interest paid is higher, at 3.54pc.
Taxes and inflation mean that the real rate of return on money deposited for two years or more is less than 1pc.
Economist Alan McQuaid, of Merrion Stockbrokers, said people were being "recklessly conservative" by leaving money in accounts that were paying them very little.