AIB and KBC Bank to cut deposit rates for regular savers

Both AIB and KBC Bank are set to cut the rate of return they offer savers, exacerbating the difficulties faced by customers as they try to at least match inflation in a derisory interest rate environment.

AIB has told its customers that it will cut the interest rate it offers on both its AIB Saver and Online Saver variable rate deposit accounts from 1 per cent to 0.9 per cent from July 30th.

Both of these accounts allow customers to save between €10 and €1,000 each month and earn a return of 1 per cent on these deposits, although after a year, or any funds deposited on a monthly basis in excess of €1,000, earn a return of just 0.01 per cent.

The latest move will be the first time the bank has cut rates since March 2018. While the European Central Bank has kept its main refinancing rate at zero since 2016, Irish banks have continued to slash the returns they offer Irish savers.

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Under review

Of the decision to cut these rates, a spokesman for the bank said: “Deposit pricing remains under review as AIB continues to align its funding costs to prevailing market conditions. To date, AIB has endeavoured to insulate the vast majority of our customers from the commercial realities of a sustained period of negative interest rates and intends to continue to do so.”

KBC Bank is also set to cut the top rate it offers regular savers from 2 per cent back to 1.75 per cent, as it cuts the bonus it offers those who also open a current account with the bank from 1.75 per cent to 1.5 per cent on May 29th.

Savers looking to maintain a better rate of return after the latest cuts could consider moving their regular savings to another bank. AIB subsidiary EBS will soon offer a similar return to that offered by KBC, of 1.75 per cent on regular savings of up to €12,000 a year, without the need to also open a current account with them.

Threat of inflation

The continued downward pressure on deposit rates should be of concern to savers given the increased upward inflationary pressures now in evidence in the Irish economy. If inflation exceeds the rate of return savers earn, then the “real” value of their money declines.

As noted by Goodbody Stockbrokers economist Dermot O’Leary last week, for the past number of years Ireland has had the unusual position of being among the fastest growing economies in the euro area, yet with the lowest inflation rate. This is now changing, as evidenced by inflation reaching a seven-year high of 1.7 per cent in April, “bang in line with the rest of the euro area”.

“There are signs that the exceptional period of low inflation is at an end,” Mr O’Leary said.