It's been a turbulent couple of weeks for the Irish banking sector. Two of our best-known financial institutions announced eye-watering losses and two more announced that they will cease to operate this year.
One of those on the way out is Postbank, which described itself as providing "simple, straightforward financial products and services that are good value for money". An Post's readymade network of 1,200 branches gave the venture enviable reach, and excellent demand deposit rates attracted 170,000 customers in less than 3 years. In 2008 Postbank was opening 400 new accounts a day. Postbank seemed destined for success.
Last week, in a statement explaining why Postbank was pulling out, chairman Thierry Schuman said the decision was due to in part to "the highly competitive savings market within Ireland". He also said that he couldn't see profitability on the horizon.
Could rates really be so good for savers that an organization like Postbank is forced to pull out of the market? Is customer inertia a thing of the past? Are Irish customers really changing banks in search of the best rates?
I decided to take a look at Mr Schuman's "highly competitive savings market" in Ireland to find answers to these questions.
For this post I'm going to look at demand deposit accounts only. They're the ones that everyone wants to put their money into. With demand accounts, you can generally deposit as much or as little as you want. You can take your money out whenever you want without penalties or notice and you don't have to keep adding a set amount every month.
Unfortunately, demand deposit accounts often pay meagre interest. Rates of one tenth of one per cent are not uncommon. So when Postbank launched its Premium Saver account in 2008 with rates ranging from 3.3% to 4.3% interest, it attracted plenty of interest.
The high interest rates didn't last long though. The most recently published Premium Saver rates show that Postbank was offering just 1.5% to 1.6% on the same account. Of course, now anyone with a Premium Saver account will need to start looking around for an alternative.
So in the spirit of what Postbank was trying to do when it opened for business, let's look at the best demand accounts for your money in the Spring of 2010.
For my unscientific review, accounts must meet certain criteria to qualify for the demand label. In no particular order, these criteria are:
- Instant access - if I want all my money now, I should be able to get it.
- No penalties for withdrawal no matter what the sum
- No requirement to make regular deposits
- Freedom to add lump sums
- No terms
- No fees
And finally, If the accounts are tiered - meaning the more you have on deposit, the higher the interest - I'm only going to look at the lowest tier because not all of us have huge lumps of cash lying around.
The chart below shows 10 demand accounts from well-known banks and building societies listed with the highest rates first.
| Bank | Account | Limit | Rate |
|---|---|---|---|
| Irish Nationwide | Instant Access Deposit Account | €20,000 | 3.25% |
| Anglo Irish Bank | Premium Demand Account | €100,000 | 3.10% |
| Northern Rock | Demand Online | €1,000 min | 2.5% |
| RaboDirect | Savings On-Demand | Unlimited | 2.00% |
| Ulster Bank | eSavings | €1,000,000 | 1.25% |
| National Irish Bank | Flexible Savings Account | €1,000,000 | 1.00% |
| EBS | Instant Access | Unlimited | 0.03% |
| Permanent TSB | Instant Access Savings Account | €25,394.75 | 0.01% |
| AIB | Demand Deposit Account | €63,399 | 0.01% |
| Bank of Ireland | Demand Deposit Account | €99,999 | 0.01% |
Of course, nothing is as simple as we'd hope for. Irish Nationwide has the highest rate available, but 3.25% is only good for amounts up to €20,000 - then the rate drops to 2.00%
If you have a large lump-sum, Anglo's Premium Demand Account may be a better bet than Irish Nationwide, but the 3.10% rate falls to 2.80% for amounts over €100,000 and the rate is only good until the end of the year.
Northern Rock's Demand Online requires a minimum balance of €1,000, it's an online only account and their unlimited UK government guarantee expires in 3 months when deposits will be covered up to the Euro equivalent of £50,000.
The simplest and arguably the best demand account is with RaboDirect. You can open with €1, there are no tiers and you can deposit up to €1,000,000. The interest rate is strong at 2.00% and RaboDirect is the only AAA rated bank operating in Ireland.
The way I see it now is that to get the best rates in the market, you need to be proactive. If you have €20,000 in a demand account with AIB, PTSB or Bank of Ireland, you'll earn just €2 in interest for the entire year. Move it to Irish Nationwide and you'll earn €650. That's a pretty good earner for very little effort.
Of course, if you don't need instant access to your money, you can earn better rates, but that's another post for another day.
