Irish deposit holders face lengthy interest wait even as ECB hikes

The State’s banks will inevitably over the coming weeks pass on at last part of the three-quarters of a percentage point increase the European Central Bank slapped on to its main interest rates on Thursday — after absorbing an initial half-point hike announced in July.

But with the top executives from the main banks due to appear before the Oireachtas Finance Committee next week, none of them will want to incur the wrath of headlines-seeking committee members by moving before then, at least.

“We suspect that the Irish banks will start to push up fixed and, in some cases at least, variable rate mortgage pricing in the near-term following 125 bps of upward movement in the key ECB rates in less than two months,” said Goodbody Stockbrokers analysts in a note to clients on Friday. “However, there is a possibility that any such decisions could be put on hold until after the upcoming Budget on 27th September.”

Of course, those on tracker mortgages — typically priced at a one percentage point premium to the ECB’s main rate, which had been at zero for over six years — face automatic increases to their monthly payments every time the Central Bank moves. But few borrowers on higher variable and fixed rates will shed a tear for those guys — given that they have been effectively squeezed by banks for well over a decade to cross-subsidise their low-yielding tracker portfolios.

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But what about savers and current account holders, who have been earning zilch on their money for an extended period of time?

With the ECB’s own deposit rate having swung from minus 0.5 per cent to plus 0.75 per cent in less than two months, depositors may feel its high time they get something.

The bad news is that with banks having shielded most depositors from the negative rates they faced on excess cash for eight years, they are bound to wait for some time to come before paying up — especially when Irish institutions have way more money on deposit than they know what to do with.

As of the middle of June, AIB and Bank of Ireland were holding a combined €57 billion more in customer deposits than they had out on loan — a figure that is only likely to grow over the coming months as more Ulster Bank and KBC Bank Ireland customers continue to seek new homes for their cash.