Bankers know well enough that in uncertain times people want two things from a deposit account – quick access to their money and a bit of security.
With things the way they are, you’d expect all the banks to be offering customers just what they want. Simple accounts that pay decent rates and give customers easy access to their cash.
In reality, the Irish banks have chosen to compete for our money in exactly the opposite way – they are trying to lure us in with fixed term accounts.
Now, there’s nothing wrong with fixed term accounts, and they are a concept that should be pretty simple. You lock your money away for a while and you get a good rate of interest in return. The longer you put your money away, the better the rate you can expect to get.
But even though the Irish banks have chosen to compete with term accounts, they’ve tossed all the old simplicity out the window. Over the last year, a bunch of new accounts have been introduced that turn the humble fixed term on its head.
There are now peculiar terms like 26 months - so banks can showcase big interest rates. Accounts that are basically two-year terms are advertised as having interest rates that double. There are even funky new gimmicks like paying interest first. Term interest rates have gone completely askew too. Suddenly one-year terms are paying more than five-years from the same banks.*
Still, there’s no denying that there are spectacular rates out there. In some cases, customers can get a higher rate on their savings than they could expect to pay on a new mortgage… which must bring into question the sustainability of this kind of banking.**
Despite the sort of manic brinksmanship where rates keep going up and features become more elaborate, money is still pouring out of Irish bank accounts. In fact, Central Bank figures say that ordinary Irish citizens have withdrawn more than €5 billion from deposit accounts in the last year alone.
With the financial crisis, we’re now so used hearing huge sums of money thrown about the place that €5 billion doesn’t sound like all that much anymore. But when you consider that the total amount that people like you and I have on deposit with Irish banks is €91 billion, you can begin to see how serious withdrawing €5 billion a year actually is.
Even with the loss of all this cash, the Irish banks have still not switched tack and started offering the kinds of accounts that their customers really want. Most demand accounts from Irish banks are offering rates as low as 0.01% - that’s one hundredth of one percent. It means that to earn just one euro you’d have to put €10,000 on deposit for a year. It’s amazing to me that the banks actually offer these kinds of accounts at all. But I suppose if you can get some sucker to give you his money for nothing…
I’m still a fan of demand accounts though (but not the 0.01% types). I feel that I’m doing the bank as much of a service by trusting them with my money as they are doing for me by looking after it. So I want to have access to my cash when I need it and I want to earn a reasonable rate of interest. Is this too much to ask?
Well, for some banks it seems to be. But here’s the thing… more people search for instant access accounts using the bonkers.ie website than any other type of bank account. This is the kind of information that banks pay tons of money for, and I’m giving it away right here for free.
Did you hear that Irish banks? I said that more Irish people search for instant access bank accounts than any other type of bank account!
So then why are the banks offering elaborate oddball term accounts instead? Sure, it’s because they want to lock down money. But the money is still walking – and I think it’s because people just want quick access and security if they can get it.
So, what’s out there for the nervous saver then? Well, there are “instant access” accounts that offer several withdrawals a year and there are accounts that let you have some of your money during a term, but sadly it seems that the only institutions offering realistic demand accounts are the overseas guys.
This could be why nearly half a billion quid is leaking from the Irish banks every month. The likes of RaboDirect, Nationwide UK and even Ulster Bank are offering instant access to cash at reasonable rates. Now they are nothing like the 4+ percent you can get on an Irish term, but rates like 3% for Nationwide UK’s Easy Access Savings account, 3% for Ulster Bank’s Direct Saver account and 2.4% for RaboDirect’s On-Demand account are a little more like it.
There are some caveats of course. You need €2,000 to open the Nationwide account and you only get six withdrawals per year, and you’ll need to keep at least €15,000 in the Ulster Bank account or they’ll pay you that dreadful one hundredth of one percent.
Then there’s the Rabo Account. It doesn’t seem to have any restrictions. You can open it with a euro and you can withdraw whatever you want whenever you want.
So RaboDirect seems to have remained pretty true to its message. Their savings products are simple and there aren’t too many of them. And their instant access account is actually a proper demand account. Their restriction is that they don’t have any branches, and I’m sure that that’s given more than a few people pause before opening an account. I think people still like to know that they can walk into a building and walk out with a fist full of their cash.
There is no doubt that there is a serious problem when so much money is walking out the doors of the banks. According to a recent article in the Indo, there’s even been a huge spike in the sale of home safes as people choose to take keep their money at home with them. So is it time that the banks took a good look at what they are doing and actually offered punters what they want?
A little over a year ago I wrote a piece about demand accounts - back then you could get cracking interest rates of up to 3.25% from the likes of Anglo Irish, Irish Nationwide and Northern Rock!
* Permanent TSB 26 Month Interest First Savings Account – 4.91% AER. This account is advertised as having a 10% return. This account pays the interest in the first month of the term.
2 year Bank of Ireland Double Your Interest term account - 3% in the first year and 6% in the second year. This account expired November 2nd.
EBS 12 Month Term account pays 3.95% AER and EBS 5 Year Term pays 3.37%.
**AIB is offering 3.13% First Time Buyers Mortgage Rate and 4.1% on their One Year Fixed Term Reward Account