The failure of Irish banks to increase deposit rates in line with the European Central Bank (ECB) is negatively affecting savers, who are already battling with low-interest rates. As it stands, savers in Ireland have placed a staggering €137 billion in overnight deposit accounts, but these offer a minimal average rate of 0.13%. This figure has been stagnant for seven months according to the Central Bank.
It has been pointed out that these banks, despite making substantial annual profits part of which come from ECB-held deposits, have merely passed a slight portion of the ECB’s interest rate hikes leading to billions of euros in lost interest for Irish savers. This is heavily criticised.
The Brokers Ireland’s deputy chief executive, Rachel McGovern, has highlighted that with such a low return rate and an inflation rate of over 2%, the savings of individuals are being diminished. There is evidence that some savers are starting to switch to long-term accounts offering better returns. For instance, the household deposits new weighted average rate with an agreed maturity is at 2.77%. However, McGovern noted that not many savers are making this move.
She also advised that individuals should take care in making their savings more beneficial and seek financial advice to explore all possible options, ensuring they align with future goals.
Recent retail interest rate data reveals no change in the average interest rate for new mortgages in the Republic from last month which stands at 4.11%. This is higher compared to an average of 3.72% in the euro area. This information comes as an expected rate cut from the ECB is anticipated.
According to McGovern, many households are in a “wait and see” mode as the ECB is likely to decrease its headline rates by 0.25% this month and possibly by an additional quarter point before this year ends.
The Central Bank’s recent data shows a decrease in the proportion of new mortgage agreements with fixed-rate from 70% in June and 86% last May to 69% in July. It’s noteworthy that preference for fixed-rate products by new buyers in the Republic has drastically increased over the past years, from just 10% of Irish home loans in 2014.