Charlie Weston explains how to make the most of funds on deposit by choosing the right account.
Irish are tremendous savers, says Simon Moynihan of price comparison site Bonkers.ie. Saving money is a habit we've maintained despite the banking crisis, the housing collapse and the worst recession in the history of the state, he says. "By themselves, any one of these events should lead to a huge reduction in the money people keep on deposit, and all three together are fully capable of starting a ran on the banks... But not in Ireland."
Over the last seven years, we've weathered unemployment, falling incomes, increased taxes and collapsing property values - and we've still managed to maintain a huge amount of money in the very banks that brought us many of our recent problems.
In fact, there is €20,400 on deposit in Irish banks for every man, woman and child in the country, Mr Moynihan calculates.
And if you look just people aged 25 and older, there is around €31,000 for every man and woman in Ireland, a staggering amount given the trauma of the last few years.
For households, the figure works out at €56,851 each in savings.
"Certainly, we keep an awful lot of money in cash deposits, but what's really interesting is that we seem to have defied the European Central Bank, our own government and even economic theory. "And that's because we haven't just maintained our savings over the last few years, we've actually routinely increased them and now have the highest level of deposits held with Irish banks since January 2011 at a staggering €93.77bn - and that's just private households," Mr Moynihan said. In fact, since 2009, the amount Irish private households keep on deposit has never gone below €90bn, he says.
DIRT and defying government policy.
When the crash hit, cash was urgently needed to stimulate the economy, Mr Moynihan said.
The State was well aware of how much money was sitting in the deposit accounts. "So the government decided to try and loosen up some of that cash. And it tried and tried. Every year from 2008 to 2014 Deposit Interest Retention Tax (DIRT) was increased."
And over those years, the DIRT rate went from 20pc up to 41pc. But it didn't stop there. For many people PRSI has to be paid on savings interest now too, which effectively brings the DIRT rate up to 45pc. And yet Irish people held on to their deposits and kept saving. Defying the ECB The European Central Bank didn't stand idly by either, Mr Moynihan says. It wanted people to spend Europe out of the recession too, so it started lowering its interest rates. In 2008, the ECB rate was 3.75pc. In the following six years, the ECB cut that rate 15 times and it now stands a fraction off zero at just O.O5pc. The lowest it's ever been.
Savings returns have fallen by 74pc.
The knock-on effect of the rock-bottom ECB rate is that the savings interest rates paid by the banks have fallen substantially too. The best interest rates on benchmark one-year term deposit accounts have collapsed from 3.5pc in 2010 to just 1.15pc in 2015. With such low interest rates coupled with a higher DIRT rate, savers are earning 74pc less on their savings than they were five years ago. Until recently, savers were losing money by keeping their cash on deposit due to inflation, Mr Moynihan from bonkers.ie says. The drop in interest rates and increase in DIRT has affected savings returns so dramatically that a household with €10,000 on deposit in the best one-year term account available will earn just €67.85 after one year. Back in 2010, the same household would have earned €265.50 on the same €10,000. And yet Irish households continue to save "The savings habit has proven to be as solid as the Rock of Cashel," says Mr Moynihan. "It has defied Department of Finance and a government policy that has specifically targeted savings by increasing DIRT and reducing returns."
The savings habit has even defied the ECB and continued to save despite record low interest rates.
But he says that the savings habit has not been rewarded by our banks which have all reduced interest rates to a point where it is difficult to realise any meaningful return on savings.