Revolut, an online banking service, announced on Thursday their initiation of an instant access savings account. They deliver an interest rate of two per cent for their complimentary accounts and increase the rate to 3.49 per cent with their premium chargeable accounts. This interest rate surpasses what traditional Irish banks are proposing, demonstrating the robust rivalry neobanks are imposing on institutions such as AIB, Bank of Ireland and Permanent TSB.
What is the specifics of Revolut’s proposal?
Revolut has inaugurated a demand deposit account with more appealing interest rates than traditional Irish banks. For their free accounts, customers will receive an interest rate of 2 per cent, which can climb up, across five levels, to peak at a striking 3.49 per cent. However, be aware – their highest-level account, labelled “ultra”, demands a management fee that can amount to a steep €55 per month or €540 annually.
What are the implications for traditional banks?
The interest rates provided by Revolut decisively highlight how lacklustre the offerings are from Ireland’s primary banks. This is especially clear when considering the recent expansion of ECB interest rates. Independent economist, Simon Barry, has observed that “Revolut’s most basic new account gives an interest rate that is 15 times greater than the typical rate furnished by other Irish credit institutions for their household customers”.
Are other neobanks outperforming Irish savings rates?
Although Revolut stands as the most significant entity in Ireland’s neobank scene, a wider variety of alternatives have emerged. Price comparison expert Daragh Cassidy of Bonkers.ie emphasises that “consumers often overlook the wealth of options available for their savings now”. Previously, the main options were predominantly offered by the top three Irish bankers. Today, a multitude of alternatives like Bunq, Raisin and N26 are all providing comparable offerings.
So, amidst the buzz around Revolut, could there be superior rates elsewhere?
Indeed, N26, a German online bank with nearly 200,000 patrons in Ireland, provides an interesting savings offer. One can accrue a 2.8 percent return on a simple instant savings account, escalating to a lucrative 4 percent for their “metal” account, coming at a fee of €16.60 per month. Similar to Revolut, their premium account comes with additional benefits, including bonus ATM withdrawals with no extra charges. Concurrently, Bunq has given a steady 2.46 percent since the inception of the year.
Despite these rewarding rates, one might wonder why individuals are hesitant to completely transition to these virtual banks. The issue continues to cause obstacles for emerging bankers. Numerous users utilise services like Revolut for specific needs while their primary income and savings remain in traditional banks. The primary reason for this pattern is that once individual’s salaries, direct payments, along with other transactions are affiliated with a particular account, they typically stick with it. Opening an account with virtual banks is straightforward, however, relocating all finances to a new account can be administratively tedious, demotivating certain customers.
A common concern is the safety of one’s funds, given these banks are not based in Ireland. This doubt is yet another factor influencing many to refrain from transferring all their financial affairs to these online platforms. Revolut, for instance, functions under the Lithuanian regulations, ensuring money under the Lithuanian deposit guarantee scheme. The same goes for N26, with the reassurance coming from the German scheme. Cassidy reassures that there are no added risks in this procedure and by spreading funds across various banks, one could indeed be reducing risk.
However, if an issue arises, customer service especially in physical form can be problematic. These institutions lack physical branches in Ireland – a dominant disadvantage noted by Cassidy. Comparatively, customers can walk into a branch of Bank of Ireland, AIB or Permanent TSB to resolve their issues in person. As opposed to this, Revolut’s customer service is entirely app-based which has reportedly created several stumbling blocks.
Are there additional concerns about committing entirely to these online accounts?
Cassidy highlights the issue of discrimination against Iban, specifically from Lithuania. Reports have indicated that certain businesses and organisations previously declined transactions connected to accounts with Lithuanian Ibans, similar to the Revolut case. However, Revolut has since introduced Irish Ibans for local clients, while N26 offers German Ibans.
Will acquiring a mortgage be challenging if one is relying on these service providers?
Cassidy assures there should be no issues. Revolut does not supply mortgages in Ireland, but he emphasises that utilising a neobank account full time will not directly impact your mortgage request. Essentially, if you wish to secure, let’s say, a €300,000 mortgage that would require you to repay considerably more, the banks will be eager for your business. They need to assess how you handle your financial affairs, which entails perusing bank statements and asking various other inquiries. Nonetheless, this would be the usual procedure if, for instance, your primary account belonged to AIB and you applied for a mortgage with Permanent TSB.
Is the sustainability of these high rates guaranteed?
This is a crucial query. The majority of these products have variable rates and are subject to change. Given that the European Central Bank is preparing to decrease interest rates next month, deposit rates may also be affected in the forthcoming months.