Latest figures from the Central Bank reveal that savings by Irish households are once again on the rise, thanks partly to the Covid-19 pandemic.
The pandemic has continued to trigger a surge in savings this year, as Central Bank figures show that Irish households now have over €136 billion on deposit with banks and credit unions in Ireland. An all-time record.
While consumers are continuing to save more and more, they’re also increasing their borrowing, with net lending to households rising by €210 million in the month of October. Over the year, net lending has increased by €600 million, or 0.7% in the year to end-October 2021.
Why are savings going up?
According to the Central Statistics Office, there are numerous reasons why savings are on the rise. It should come as no surprise that the knock-on effect of the Covid-19 pandemic has greatly influenced the situation.
Rising disposable income
One reason for the rise in savings is due to the fact that incomes for those who continued to work through the restrictions rose on average. While some sectors, such as hospitality, were badly hit by the pandemic, other fields such as technology and pharmaceuticals, saw profit growth of 12% in their Irish operations in 2020.
The Government’s introduction of the pandemic unemployment payment (PUP) and wage subsidy scheme has also helped to mitigate the decline in incomes for those out of work due to restrictions.
This has helped to protect people’s incomes to a higher degree, with some earning more than they would have had they been working. Since its introduction in March 2020, over €8.8 billion has been paid out through the PUP.
Lack of opportunities to spend
Despite disposable income growing, consumption declined at the same time. Due to economic restrictions put in place designed to prevent the spread of Covid-19, consumers have had limited opportunities to spend money.
Over the past two years, there’s been a shortage of holidays abroad and a curtail of in-store spending that has resulted in people opting to save their money instead.
Even with the easing of restrictions earlier in the year, many consumers have continued with their saving habits.
Uncertainty about the future
The CSO also revealed a sense of uncertainty about the trajectory of the pandemic, which has resulted in a greater degree of precautionary savings.
It appears as though consumers have become more financially aware and cautious, with many deciding to put money aside in anticipation that their finances may tighten in the future.
Working from home
Working from home is now a concept a lot of us are familiar with. When the opportunity presented itself, many workers decided to move away from their expensive rental accommodation and the hustle and bustle of the city centre and work from more affordable locations.
And without having to commute to work daily, consumers are also saving on travel and fuel expenses.
A closer look at the figures
According to the new figures from the Central Bank, savings by households have increased by just under €13 billion over the past year, an increase of 10.6%.
In fact, savings by Irish households increased by an astounding €1.2 billion in the month of October alone.
Around this time last year households in Ireland had €125 billion on deposit.
Overnight deposits, which includes money in current accounts, continue to be the main driver of both the monthly and annual increases in household deposits, despite this money making little interest for savers.
What savings options are there?
Curious about what your saving options are? We’re here to help!
Interest rates are at an all-time low at the moment meaning that the environment for savers is quite poor right now and traditional savings accounts offer little reward. However, that shouldn’t put you off saving, as there are still plenty of options for where you can house your money and get the best return.
Here are a few options available to you!
Invest in a managed fund
A managed fund is a policy that’s sold by life insurance companies. It lets you invest in a mix of assets, such as stocks and shares, bonds and commodities, such as fossil fuels. The stock market can fluctuate on a regular basis, so keep this in mind.
It’s important to also note that a managed fund is more suitable for long-term saving and you won’t be able to access it instantly. You’ll also be taxed quite heavily on managed funds, with all gains from the fund being taxable at 41%.
State savings products
The attractive aspect about state savings products is that you don’t pay DIRT (Deposit Interest Retention Tax), which is currently 33%, on any returns that you make.
The catch however is that the rates on offer are pretty measly unfortunately and you’re not going to get rich quickly by investing in a state savings product.
You can however access your money at any time, but you’d then miss out on future growth.
Top up your pension
If you have any additional savings, it’s worthwhile considering putting them towards your pension. According to experts, you need a pension of at least half your pre-retirement income in order to live comfortably in your retirement years.
Setting up a pension fund instead of a regular savings account is much more tax efficient. You won't pay any tax on your contributions up to certain limits and your savings will grow tax-free! You can also draw down a tax-free lump sum of 25% of your pension pot upon retirement.
Of course, these are just a few of the many saving options available today. There are other options available, such as investing in cryptocurrencies, opening specialised savings accounts and making investments outside of Ireland.
Take a look at our blog on the best places for savers to put their money, or listen to the episode of our bonkers.ie podcast, where we outline a range of alternative saving options to discover more ways to save!
Compare saving options on bonkers.ie
Did you know that you can easily compare savings accounts and other banking products on bonkers.ie?
Head over to our savings account comparison service to quickly compare the different account features and interest rates from all of Ireland’s providers. Easily find the best return for your savings in seconds!
If you’re fed up overpaying on your current account fees, consider switching to a different account provider. You can use our current account comparison service to review charges and fees in just a few clicks from all of Ireland’s top financial institutions.
Get in touch
Are you surprised to hear how much Irish households have saved? Have you managed to accumulate more savings than expected? If so, do you know how you’ll spend additional savings? We’d love to hear from you in the comments below!