There seems to be a somewhat regrettable juxtaposition as Irish savers start experiencing some of the most favourable rates on the market coinciding with a fall in interest rates in Europe. With the European Central Bank’s (ECB) decision to trim down rates by 25 basis points recently, bringing the central savings rate to 3.75 percent, a variety of fluctuating savings rates will be affected. Meanwhile, a couple of promising options for Irish savers have made an entrance in the recent weeks.
Is it the right moment to capitalise on the offers from businesses like Revolut and Bank of Ireland, or should one consider some of the latest substitutes for deposits from Trade Republic and Lightyear?
Looking at the new propositions, Fintech company Revolut sent tremors through the local banking sphere last month when it introduced interest rates as high as 3.49 percent. Although this is a competitive rate in the market, especially compared to the measly 0.01 percent offered by other domestic banks for immediate access funds, it does come with certain conditions.
With a regular account, holders will only receive 2 percent, lower than Bunq’s 2.46 percent. To have access to the full potential, one needs an Ultra account, which bears a monthly fee of €45 or €540 annually. This could be feasible if you’re already charged current account fees from other banks and have extensive savings – for instance, you would gain €1,745 in interest on an annual saving of €50,000.
However, there’s a caveat with immediate access accounts. The rates are inconsistent and can be modified, hence you may not have a full year at the 3.49 percent rate if rates continue dropping in Europe.
To find out your entitled rate, just select the savings button in the app, and your potential earnings will be displayed.
Remember, deposits with Revolut fall under the Lithuanian deposit insurance scheme, not the Irish, covering savings up to €100,000.
If you don’t mind putting away your money for an extended period, Bank of Ireland’s new proposal might be more appealing. With a two-year term, expecting a return of 5.98 percent is a realistic possibility.
Although there is a pressing need for State Savings to boost their offerings, as the highest rate currently stands at a mere 2 percent on a 10-year term, there has been no indication of this happening. Meanwhile, the Dutch bank Bunq has not only seen a surge of over 100 percent in its Irish deposit base since the beginning of the year, but it has also enhanced its own offerings – promising an annual rate of 2.46 percent for a 3-month period.
There is potential for further escalation in competitive offerings, particularly due to the impending entrance of Avant Money’s fresh deposit scheme. However, any concrete details regarding potential schedules or product specifics remain forthcoming, as confirmed by a representative from the parent company, Spanish Banks Bankinter. As such, for those seeking better rates, investments elsewhere may need to be considered, albeit with careful contemplation on where exactly your finances are being transferred.
One such alternative to consider is Trade Republic, an online German investment platform and bank. It puts forth to its Irish investors an attractive proposal of being able to “invest, spend and bank”. Besides providing the opportunity to invest in over 9,000 stocks and Exchange-Traded Funds (ETFs) from as low a sum as €1, you can also gain up to a claimable 3.75 percent on cash amounts reaching €50,000. commencing from June 12th, till then, the rate was flat at 4 percent. Interest is calculated daily and paid out each month, providing the flexibility to withdraw your funds at will.
A representative from Trade Republic confirmed its commitment to “pass the ECB deposit facility rate to our customers in full”, with the platform being under the regulation of Bafin and the Bundesbank. However, it should be noted that some items have been subject to waiting lists, such as the Trade Republic debit card which provides 1 percent saveback benefits and was unavailable until May 28th. No such limitation was reported for deposits.
Concerning safeguards: As it isn’t a conventional savings account, your capital won’t be insured via the deposit guarantee scheme, which provides German government coverage of up to €100,000. Rather, funds in Trade Republic’s cash accounts are so-called “legally protected” up to €100,000 per investor and are maintained within an omnibus trust account at one of its four banks which include Deutsche Bank, Citibank, JP Morgan, and HSBC. The safeguard hails from these banks being a member of governmental schemes within their home countries. For example, accounts kept at HSBC and Citibank are backed by the Irish scheme, as stated by a representative.
As regard to taxes, Trade Republic declares it does not deduct taxes on interest, hence the responsibility to report and pay taxes is on the investor.
Turning to Raisin, it’s been in the business for a considerable duration, marking Ireland in its sights since 2019. Regulated by Ireland’s Central Bank and authorised by Bafin, the German financial institution, it’s currently catering to over a million individuals. Apart from being a European-wide savings platform, it offers Irish individuals the convenience to store their savings across different European deposit specialists, which often provide better rates than the Irish alternatives.
Rates include Nordax Bank of Sweden offering a yearly interest of 3.4% on a deposit range of €2,000 to €85,000 whilst Latvia’s Blue Or is presenting a rate of 3.45% on deposits not exceeding €100,000. The BFF Bank’s short-term rate of 3.5% AER seems quite attractive when compared to its one year term standing at merely 3% which suggests possible anticipation of ECB rate reductions.
With regards to safeguards, the individual bank you choose will determine the covering security, anticipation being it would be secured through their native country’s schemes, although not necessarily up to the €100,000. For instance, Sweden’s Nordax Bank, which falls under Sweden’s statutory deposit scheme but it merely protects deposits up to 1,050,000 Swedish kroner per investor, which is approximately €90,000.
Younited is a banking institution originating from France, providing deposit protection up to €100,000 through the French Deposit Guarantee Scheme. In contrast with Ireland, the taxation process might become slightly complex when associating with Portugal, considering the existence of a dual taxation treaty. The place where one prefers to deposit their finances plays a significant role in defining their tax implications. To be specific, deposits are obliged to pay Dirt at a 33% rate where any earnings made outside Ireland must be communicated to the Revenue.
Certain countries might enforce their specific withholding taxes. For instance, in Portugal, Banco Português de Gestão applies a tax of 28 per cent. Although the double taxation treaty with Portugal allows you to claim this back, it could add redundancy to the process. Likewise, Spain levies a 19 per cent withholding tax that can be bypassed if one completes a Spanish tax residency declaration form when dealing with a Spanish bank.
Meanwhile, Lightyear, another fintech app endorsed by Richard Branson, the founder of Virgin Group, provides returns on surplus cash. This Estonian app, regulated by the Estonian Financial Supervision Authority, first targeted the Irish market in 2022. The app presents a multicurrency investment account that offers affordable accessibility to stocks, funds and returns on unused cash, similar to Trade Republic. The provided interest is tied to the ECB rate with a deduction of a fixed 0.75 per cent fee, leading to a current cash rate of 3 per cent.
The app yields instant access without minimum deposits or maximum limits. It also encourages higher rates by accepting higher currency risks, producing a 4.5 per cent yield for Irish customers dealing in USD and GBP, after subtracting a 0.75 per cent fee.
The Lightyear platform offers an additional euro savings scheme with a return rate of 3.82 per cent, derived from Blackrock money market funds. However, this isn’t accessible to clients resident in Ireland, believed to be due to the withholding tax applied to these funds for Irish inhabitants. Consequently, the net yield for Irish customers would effectively be the same as the cash rate, approximately 3 per cent.
Lightyear asserts that it ‘does not utilise the funds or securities of customers to fulfill its own requirements’; all customer funds are maintained in distinct, autonomous accounts.
In terms of safeguarding, the investment firm clarifies that places savings with Lightyear ‘do not carry the same assurance as a bank deposit’, hence your capital is not under the protection of Estonia’s bank deposit protection sectoral fund. Since Lightyear is an investment firm rather than a bank, your assets are guaranteed up to a limit of €20,000 via the Estonian Investor Protection Sectoral Fund, similar to the Irish Investor Compensation Scheme.
Lightyear also stipulates that it ‘avoids using client’s funds or investments to meet its own obligations’. All funds owned by its clients are kept separately in distinct accounts, with institutions such as Blackrock and ABN Amro.
In a potential bankruptcy scenario, this would mean that the customer’s investments and money remain untouched and would be fully returned to the client, as confirmed by a Lightyear spokesperson.
In relation to taxes, Estonian inhabitants will have taxes on deposit earnings automatically subtracted. All other clients will need to self-report these earnings. For Irish inhabitants, this denotes a requirement for a Dirt declaration, as per a Lightyear spokesperson. This can be included in your annual tax return.