Irish people are continuing to save and save despite the fact that interest rates are at an all time low. Is there a solution? How can we still make a decent return on our savings investments?
The lack of productive savings account options in Ireland has been a problem for Irish citizens for a while now, compounded by the announcement that RaboDirect, the online savings bank will close its doors on the Irish market later this year in May.
Interestingly, despite the fact that savings rates across the board are either at or are approaching zero percent, Irish savers are continuing to put money away every month.
In 2017, The Central Bank reported that Irish citizens now have nearly €91 billion on deposit with our banks, building societies and credit unions. That’s an average of about €53,000 per household and is the highest level of household deposits since 2010.
Contrary to what one might expect, it seems that the lower the interest rates have gone, the more money we have put on deposit.
Just five years ago you could get a decent 3.0% return on benchmark year-long terms deposits from banks like Ulster Bank, Permanent TSB and KBC. Now you’d be doing well to get 0.75% on the same accounts.
Interest rates have fallen steadily over the last five years, with the last slew of cuts coming from KBC, Permanent TSB and Bank of Ireland over the summer of 2017.
To put things into perspective, savings interest rates are so poor right now that if you put a lump sum of €10,000 on deposit for a year at a rate of 0.75% (which is the best rate on this type of account), after taking DIRT into account, at the end of the term you’d get just €44 euro in interest! Your sizeable 10K chunk of change wouldn’t even earn you a euro a week. Abysmal.
Where should I put my savings?
So you’ve made the wise decision to save and you’re determined to stick to your guns but it can be pretty disheartening when your hard-earned investment makes such lousy returns. It begs the question, is there anything to be done to remedy the situation? Here’s a tip that you might not have considered…
Treat your current account like a savings account
What do we mean, you ask? Well consider this; most of Ireland’s major banks offer an option to waiver banking fees providing you have a certain amount of cash in your current account at all times. With KBC it’s €2,000, with AIB it’s €2,500 and with Ulster Bank and Bank of Ireland it’s €3,000. Though they can sometimes easily be overlooked, those transaction fees do add up over time...
For example, let’s say every month you make five ATM withdrawals and you make around 20 chip & pin transactions with your debit card on average. Based on this number of transactions, one of Ireland’s banks would charge you €7.25 per month in fees. Over a year you’d pay €87.
That means you’re making a loss of €87 per year just to pay the bank to use your own money. That’s double what you’d be earning in savings interest from our example above!
Thus, if you treat your current account like a savings account and you meet the threshold for fee waivers, you might not earn interest, but you’ll instantly be saving more money than you would earn in interest as you won’t be penalised for using your money.
An easy way to view it is once you’ve reached that fee-waiver threshold (€2,000, €2,500, €3,000 as the case may be) treat that number as a €00.00 balance that you can’t go below.
Of course, this solution might not be appealing for those of us who need notice or fixed-term type savings plans to stop us from frivolously spending, but if you’re confident you won’t/don’t need that money immediately, this could be a great savings option for you in such an unfavourable savings account market.
Not happy with your bank’s rates and fees?
Here at bonkers.ie we know that the banking needs of customers vary greatly from person to person and not all solutions are appropriate for everyone. Before making any decisions we always recommend comparing accounts to make sure you are getting the best deal for your banking requirements.