Deposits are now the Holy Grail for Irish banks because they are under such pressure to reduce their loan-to-deposit ratios. In plain terms, they lent out way too much money and badly need deposits to balance out their loans. The result is a scramble to get as many deposits in as possible, and of course the best way to do this is with high interest rates.
Some pundits are saying that these deposit interest rates are artificially high because of the pressure on the banks - and last week the Irish Independent* went as far as to say that many households would be better off saving any extra cash instead of using it to pay down their mortgages. Why? Because the rate on a tracker mortgage is so low that you'd be better off putting that extra money into a deposit account! Who'd have ever thought...?
And then EBS came along with a campaign for their 4.0% Family Savings Account. It's a regular saver, so it should be ideal for that "extra few bob" you won't be using to pay down your mortgage. But it's not the only one. Bank of Ireland has the DualSaver Account at 4%, and Permanent TSB is offering 3.75% on their 21 Day Notice Regular Saver. So there's a choice of high-interest regular saver accounts out there.
In the spirit of finding the best deal and the best place for that extra few bob, I thought I'd take a closer look at these three accounts. Are they really all they're cracked up to be? And surely there must be a catch somewhere right?
To even out the playing field, lets say you're an average saver with €300 to put away every month for a year. How do the accounts stack up against each other?
Starting with the EBS Family Savings Account, you can put away up to €1000 a month, so no problems with the deposit amount. You can make one withdrawal at any time without a penalty, so no waiting period or loss of interest if you need cash at short notice.
There are a couple of catches though. You can only make one withdrawal during the year and another on your one-year anniversary. If you don't cash in at the end of the year, your account rolls over to a one-year fixed term at a lower rate of interest (which isn't disclosed).
So what's it worth? If you save €300 a month, you'll have about €3,678 at the end of the year of which €78 is interest. If you were to save the maximum of €1,000 a month, you'd have €12,258 of which €258 is interest. Not bad for a regular saver account.
On to the other 4% regular saver, Bank of Ireland's DualSaver Account. It's so called because you have to open two accounts - one for your regular deposits and one for lump sums when you go over €5,000 in the regular account. So, this account is capped at €5,000. That still means we can save our €300 per month though.
The catch on this account is that seven days notice is required to make a withdrawal, but unlike EBS, you can make multiple withdrawals. The second catch is the lump-sum account. Once you have saved €5,000, it's swept into an account that earns only 1%.
So, how does it stack up? Well, just like the EBS account, if you put away €300 a month, you'll have about €3678 at the end of the year of which €78 is interest - but you can keep on saving for another four months before you hit the €5,000 threshold, so you can earn more at the 4% rate. However, if you were to save the maximum (to earn 4%) in one year, you'd be putting away about €417 a month and end up with €5,112 of which €112 is interest. Still not bad.
Finally, there's the Permanent TSB 21 Day Notice Regular Saver Account. This account pays 3.75%, so a little less than the other two, but you can put away up to €1,000 a month, so no problem for our average saver. You can make withdrawals, but as the name suggests, you need to provide three week's notice to avoid paying a penalty.
Saving €300 a month, you'll have €3,673 at the end of the year of which €73 is interest - so €5 less than the other two. If you save the maximum of €1,000 per month, you'll have €12,244 at the end of the year of which €244 is interest.
The catch of course is the 21 day's notice. However, the big difference with the Permo account is that you can save up to €50,000 at the 3.75% interest rate, so you don't have to break your savings habit after one year and find a new home for your money.
EBS and Bank of Ireland will earn you a few extra euros a year, and if your savings goal is one year or €5,000 away, then these are the right accounts for you. However, if you want to get stuck into a regular savings habit over the long term, the Permanent TSB account seems like the right choice.
Of course, all the above accounts are listed on bonkers.ie and you can compare just these accounts side by side by checking them and clicking on the green "Compare" button.
*Don't overpay your mortgage
Charlie Weston, Irish Independent, Tuesday April 27 2010.