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Banking

AIB the latest bank to reduce its deposit rates for savers

Daragh Cassidy

Daragh Cassidy

Head Writer

If you’re a prospective homebuyer who’s trying to save up a deposit for your new place or just a regular saver who's putting money aside for that rainy day, your options have been pretty limited over the past few years with interest rates on deposit accounts at rock bottom.

And unfortunately things are only going to get more difficult with the news today that AIB is reducing its rates on some of its savings accounts.

What savings rates are changing?

AIB is reducing the rate on its Online Saver and AIB Saver deposit accounts by 0.10% to 0.90%.

The new rates will come into effect on 30th July.

Both of these accounts allow savers to put aside between €10 and €1,000 a month.

AIB’s rate reduction follows KBC who also announced a cut to some of its savings rates last week.

Bank

Account

Old Rate

New Rate

AIB

Online Saver

1.00%

0.90%

AIB

AIB Saver

1.00%

0.90%

KBC

Regular Saver Account*

0.35%

0.25%

KBC

35 Day Notice Account**  

0.35%

0.30%

*€100 to €1,000 per month, max balance €50,000

**€3,000 to €100,000

Creep of inflation

Until recently, inflation in Ireland has been muted. Indeed we’ve had one of the lowest rates in Europe for many years despite the booming economy. This meant some people could still make a real return, however small, on their savings (a real return or real interest rate refers to the return you make once inflation has been taken into account).

However inflation has begun to creep up recently and hit a seven-year high of 1.7% in April. This now means that it many cases, once inflation is taken into account, the return people are getting on their savings is negative. So you’re actually losing money by putting it on deposit with the bank.   

Despite this, Irish savers currently have over €100bn on deposit with the main Irish banks! The highest on record.

Limited savings options

Savings rates in Ireland are at rock bottom and have been for years ever since the ECB slashed its main interest rate in response to the financial crisis around a decade ago.

Indeed figures from the European Central Bank (ECB) show that Irish banks offer the LOWEST savings rates in all of the Eurozone. This is despite the fact that they charge us some of the HIGHEST rates on loans! Go figure!

If you have a longer-term savings goal, then placing your money into a managed, unit-linked fund, which will invest in a mix of stocks, property and bonds, might be a better option as it will provide the potential for far higher returns. However you'll be subject to taxes, fees and charges, so even here getting a half-decent return can be tough, unless markets are highly in your favour.

For example you'll pay 41% tax on any gains you make, you'll have 1% of every amount that you save taken in the form of stamp duty by the Government, and you'll also be charged a fund management fee of between 1% and 2% a year, which all adds up.

In short, Ireland is not a favourable place for savers right now.

Investing in State Savings Bonds or Prize Bonds is another alternative. The interest rates on offer with State Savings Bonds are also quite low but the advantage is that any returns that you make are paid out tax-free and not subject to DIRT.

As for Prize Bonds, instead of earning interest, you get entered into a weekly draw for prizes ranging in value from €50 to €50,000, with a €1m prize up for grabs twice a year. Should you be lucky enough to win, the money is paid out tax-free. 

You can also cash in your Prize Bonds at any time after the minimum holding period of 90 days and you'll receive the full face value within seven working days.

Compare rates on bonkers.ie

Despite the unfavourable climate for savers, it's still a good idea to put some money aside every month. And the good news is that if you are trying to save, there are still accounts which offer up to 2% in some cases.  

You can compare all savings rates across all providers quickly and easily on bonkers.ie right now.

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