Last week Dermot Ahern said that we Irish citizens should get out there and get spending and stop being such a bunch of scrooges squirreling away our cash in pesky savings accounts...
Well, not exactly, but he did say we should stop saving and start spending, and Dermot Ahern certainly hasn’t been the first Irish politician to say it. Every now and then, they cast their hairy eyeballs over the vast amount of cash we’ve stashed away and I’m sure they sigh to themselves and think that if they could just somehow encourage a no-holds-barred spending frenzy then all our problems would be solved. If it could be done with real cash and not that borrowed stuff, then all the better!
Although his comments were taken pretty badly, he is right. There’s a staggering amount of money sitting in our savings accounts and it’s been steadily climbing despite, or perhaps because of, the recession. We only tuck into our savings twice a year, once at Christmas and then during the summer. The rest of the time we just keep adding to the pile.
The last time the Central Bank counted it all up, there was €64.5 billion in our savings accounts and that doesn’t include our pensions, shares, investment vehicles and other ways we put away our money. That’s just cash, and it works out at €43,851 per Irish household. Imagine if we all went out tomorrow with that in a bag and started spending? What fun we’d have.
But we won’t... not yet anyway. I think that Irish people are worried about their jobs, don’t trust the government to get us out of this mess, and certainly don’t trust the banks. When jobs are more secure, and there isn’t constant talk about new taxes like water rates and property taxes and bringing low income earners into the tax net, then maybe, just maybe people will think about spending some of that cash. For now, people are keeping their heads down, saving away and preparing for the worst.
There has been a very interesting change in our savings habits though. It’s not just that we’re saving, but we’re doing something that seems to be a mirror of our turbulent economic times. Over the last year, we have been steadily taking money out of term accounts and putting it into notice accounts.
Term accounts are the ones where you agree to put your money away for a set period of time and in return you get a (usually quite good) fixed interest rate. Some accounts run for terms of as much as 10 years. Banks love them and they are generally popular with the public when times are good. However, between May ’09 and May ’10, the amount of money in term accounts has gone from €15.1 billion to €10.2 billion – a drop of €4.9 billion.
Conversely, the amount of money in notice accounts has increased from €12.3 billion to €17.2 billion over the same period of time. An increase of… you guessed it, €4.9 billion. In fact, the amount of money in notice accounts increased every month without dipping at all for that entire year.
Although I don’t like to try and pull conclusions out of data like this, it certainly looks like more than a coincidence. I feel that Irish people are simply not comfortable locking their money away for long periods of time anymore. Instead they are opting for accounts that still give decent rates of interest but that allow access after a bit of notice. 30 days or so is pretty standard and if trouble suddenly arrives on our doorsteps, we can hang on for 30 days for our money, but a couple of years is just too long.
bonkers.ie has some of it’s own data to add to this. We studied the habits of just over 3,500 savers that used our site to look for savings accounts and found that nearly 70% of those still looking for term accounts wanted a term of 1 year or less. Practically nobody was interested in terms of 5 years or more despite high interest accounts from bullet-proof institutions like RaboDirect and An Post.
The fact that we have been consistently increasing the amount of money we have in Irish banks shows that we must trust the government deposit guarantee. But not that much. We’re still saving, but we’re keeping it where we can get our hands on it fast just in case.