I write a small piece for a national magazine. Readers send in questions and I answer them the best I can. We do the same on bonkers.ie through our boards, and we get lots of direct calls and emails. We get questions on just about everything, but by far the most common are:
Where should I put my money?
Is my money safe?
I’m bringing this up today because I just got asked both of these questions by a reader for the magazine piece. Then I read David McWilliams’ latest article. In it he says that the Irish banks don’t know what’s going on and they are running scared. The proof is that they are offering nearly as much on deposits as they are charging for loans.
He’s not wrong. Some banks are advertising deposit rates that are actually higher than their mortgage rates. EBS, for example, is currently offering 4.25% on a 12 month term... and they have home loan rate of 4.19%.
Of course, good as that mortgage rate looks, we know that the banks aren’t in the home loan business anymore. We proved it here last year. And, sure why would they be when 56,000 of their mortgage accounts are now in arrears by three months or more. That’s a staggering 1 in 14, so it’s personal now. Chances are that someone you know, or someone on your street is seriously struggling.
So instead of lending us money, the banks are now desperately trying to get us to lend money to them. But they don’t want to be troubled with pesky withdrawals, so they’re offering the highest interest rates are on accounts where money is locked down for a year or more.
Here’s a little snapshot of what’s on offer:
And of course, if these rates aren’t enough to entice you, the banks are also offering gimmicks like Double Your Interest and Interest First.
Then just to give you that added level of comfort that your money is in safe hands, AIB will give you an old Anglo Irish Bank application form for their One Year Fixed Term Reward Account.*
It’s not working though. Despite unbelievable interest rates, Irish households are removing about a billion a month from the banks, and overall, deposits are down by more than 10% since last year.
So the banks keep cranking up interest rates, and we keep taking money out. Last year, EBS was offering 2.9% on its 12 Month Fixed Term and they wanted a minimum of €20,000. Now it’s 4.25% with a minimum deposit of just €3,000.
Bank of Ireland has steadily increased the rate on the Introductory Reward Account throughout this year. And not to be outdone, Permo’s “explosive return” on their Interest First account has gone from 3.46% when they launched it last year to 4.10% now.
Unsurprisingly, the banking crisis has made nervous savers out us. Security and quick access seems to be what we really want, not big rates where our money is locked down.
What’s interesting is that some banks are actually recognising this and you can now earn an ok (even good) rate on a demand or an easy access account.
If you want to be able to move money in or out whenever you want, RaboDirect’s Demand account pays 2.4%. That’s unprecedented. The equivalent account from the NAMA gang pays as little as 0.01%. What's also interesting is that Rabo is only offering 1.55% on their 1 year term, so they aren't even getting involved in that part of the market.
Then there’s Ulster Bank's Loyalty Saver which pays 2.85% depending on how much you have on deposit. And Nationwide UK is paying 3% on their Easy Access Account where you can make six withdrawals per year. Neither of these two are true demand accounts but they still offer good interest and access to your money.
Now I’m not saying that you should go with one bank over another. Or one account over another. What I'm saying is that by analysing our data and watching savers trends over the last year, we have shown that term interest rates have gone through the roof despite an ECB rate of just 1.5%, money is leaving the system and the so called "safe" banks are just not competing for term money. There has to be a reason doesn't there?
* See "Important Notice" here
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