Most savers are losing their money by keeping it on deposit with banks

A new study of regular savings accounts here at bonkers.ie HQ reveals that over half of all accounts now fail to keep up with inflation. This means that in most cases savers are actually LOSING money in real terms by keeping it on deposit with banks. This is despite the fact that households now have a staggering €101.8bn on deposit with banks and credit unions, according to the Central Bank.

Of the 25 accounts we analysed, only 11 (44%) offered an annual return above the official inflation rate of 0.70%. However, due to deposit interest retention tax or DIRT, which is currently 35% and is levied on the interest earned on deposits, a return of close to 1.10% AER is actually needed for most savers to generate a positive return on their savings once tax and inflation has been taken into account.   

Only two accounts in our study provided a return above 1.10%. A third account, the State Savings account offers a tax-free return of 0.98% AER meaning this currently provides a real return for savers also.   

The results come at a time of ultra-low interest rates worldwide and show the negative consequences this is having for savers. 

Who’s offering the best rates?

The best rate on offer is currently 1.75% AER with the KBC Regular Saver Account. With this account, accumulated savings of €1,000 would earn €17.50 a year in interest or €11.38 once DIRT AT 35% has been applied. Factoring in inflation and the real return is less than €4.50 a year. To avail of this rate, savers must also have or open a KBC Extra Current Account.    

The next best rate currently on offer is the EBS Family Savings Account, which gives a return of 1.25% AER. With this account every €1,000 would earn €12.50 in interest or €8.13 once DIRT has been applied. Factoring in inflation and the real return is just over €1.

Apart from the tax-free State Savings account, all of the other regular savings accounts in our study cost customers money in real or inflation adjusted terms once tax has been applied.

A poor time for savers

While it’s long been known that savers have been getting the short end of the stick lately, our study shows just how badly things are for them. And although inflation is expected to remain fairly tame in Ireland over the coming months, even a small increase in the headline rate, due to an oil price spike for example, would mean savers becoming even worse off in real terms.    

And while lower interest rates are good for mortgage holders and borrowers for example, we tend to forget that it makes things far more difficult for first-time buyers to save for a deposit and get on the property ladder themselves or for parents to save towards their kids’ education.

Some of the savings plans included in our study

What’s the outlook for savers?

With ECB interest rates now getting into negative territory and Irish banks very much in lending mode as opposed to wanting to attract deposits, the returns on offer to regular savers are likely to remain fairly pitiful for years to come. What’s more, the Government, through high levels of taxation, seems intent on penalising savers further. 

What are my options as a saver?

Us Irish are far less likely to invest our money than our American counterparts for example meaning we're putting our financial security at risk by leaving it in low yielding deposit accounts. So if you have a longer-term savings goal then placing your money into an investment policy, through the likes of Aviva, Irish Life or Zurich, 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 even with investing you'll be subject to Government 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 as these polices are subject to the higher Life Assurance Exit Tax and not DIRT, 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 by your policy provider of between 1% and 2% a year which all adds up!

It's a bad time to be a saver indeed.