Banks need to pass on rate hikes to savers as well as borrowers

Opinion: Central Bank says we have €141bn in retail deposits in Ireland and the banks are paying customers virtually zero interest on that fortune

While banks have profited from ECB interest rate increases, they have offered little to savers.

While the whole country was glued to Oireachtas TV, watching Ryan Tubridy and Noel Kelly get skewered by politicians, I was meeting someone who had just inherited a significant sum of money. The point of discussion was the fact it had been in the bank for over six months and they felt they “simply had to do something with it as it’s earning nothing in the bank and inflation is very high”.

It brought to my attention the fact that here we have a country, engrossed with how a semi state spent €345,000 yet meanwhile is seemingly happy to ignore the fact they we, as savers, are missing out to the tune of over €3 billion, per year, in deposit interest from banks, credit unions and the post office. It represents an extraordinary transfer of wealth from the ordinary savers of this country to the banks and their shareholders, from pensioners and those saving for a deposit for a house, to the banks and their shareholders

It may surprise you to know that, as per recent Central Bank data, we have €141 billion in retail deposits in Ireland. This is not pensions or company cash, it’s the accumulated savings of the 1.86 million households in this country ranging from accounts with €100 in them, to those in the millions of euro. It will not surprise you to learn that, from the same data, the average rate of interest paid on these accounts ranges from 0.04 per cent to 0.28 per cent for on demand, to seven-day-notice accounts.

Why does this matter? Since last summer the European Central Bank (ECB) has been increasing its core rates of interest to the extent that those on tracker mortgages are paying on average over €400 per month more for their mortgage now than they were this time last year. Those increases by the ECB continued last week with another quarter point hike. The banks justify this as they are just passing on the ECB rate increase to borrowers. Those applying for new mortgages are getting notices informing them that the rate they thought they were going to get has now gone and they will be paying 0.25 of a percentage point or half percentage point more, as the bank are just passing on the ECB rate to borrowers.


Irish banks have gone from having to pay the ECB to hold their deposits, to now earning 3.75 per cent. How nice for them

But as my granny used to say, what’s good for the goose is good for the gander.

Where is the similar speed to action for savers? Since August 2022, the European Central Bank has increased the rate it will pay for deposits from -0.5 per cent (yes, minus!) to 3.75 per cent today. This means that Irish banks have gone from having to pay the ECB to hold their deposits, to now earning 3.75 per cent. How nice for them. This has been instantaneous and the banks have been fortunate to have such large amount of deposits available to them to benefit from such an increase. How much interest could they earn from the ECB if even €100 billion of the €140 billion on deposit with them was placed with the ECB – well €3.75 billion of course. Do you believe they haven’t been doing this?

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At this juncture, for the bankers spitting out their coffee reading this piece, it’s appropriate to acknowledge that I am presenting banking in a very simplified manner and there are numerous complexities to how a bank manages its balance sheet. This is most certainly true. However, complexity isn’t an excuse for what is happening to Irish savers. At a time when a grandmother is getting 0.25 per cent from the Bank for her €20,000 in savings, her granddaughter is borrowing €20,000 to buy a new car and, according to the Irish League of Credit Unions, is paying an average of 8.6 per cent on the loan, yet the Bank are earning up to 3.75 per cent on granny’s money.

Endless coverage

All of this has happened in less than a year and yet we’ve had endless coverage and even two Dáil committees convened to discuss the €345,000 paid to Ryan Tubridy. Imagine the outrage if grandmothers realised that all they needed to pay what have been surging ESB bills was a fair rate of interest on their savings. Even 3 per cent on €20,000 would net €600. We have a Government bending over backwards to help with the cost of living crisis. Perhaps it could start with getting the banks to pay savers what they should be paying them.

To paraphrase an old movie line, the greatest trick the devil ever played was to convince people it’s acceptable to give your money to a bank for no financial return

Maybe the Government might also realise that the exchequer is missing out on vital DIRT receipts. Most pensioners are exempt but the rest of the country pays 33 per cent tax on all deposit interest. If we were paid the fair amount of interest then that could be over €1bn in additional tax revenue for the state. At a time when we’re being told that there isn’t enough money for vital public services, this is the very lowest of low-hanging fruit.

To paraphrase an old movie line, the greatest trick the devil ever played was to convince people it’s acceptable to give your money to a bank for no financial return. Don’t write to your TD about what someone else is getting paid, write to them about you are getting paid.

Robert Whelan is managing director of Rockwell Financial.