We’re a nation of savers – but while we’re good at squirrelling money away, we’re not great at making it work as hard as it might.
Irish households have more than €170 billion on deposit with banks, with the vast majority of it earning virtually nothing, resting in current or on-demand deposit accounts enjoying negligible interest rates. And what do we mean by negligible?
Well, AIB, Bank of Ireland and PTSB will give you 0.25 per cent, 0.1 per cent and 0.01 per cent respectively on your lump-sum savings. It’s even worse when inflation, currently running at close to 4 per cent, is added to the mix. That means those with money on deposit in a low-yield current account will lose value at a rate of more than 3 per cent between now and next June.
There are better rates available – Bank of Ireland for example offers a 3 per cent rate on regular monthly savings of up to €2,500 a month, but the interest drops to just 0.5 per cent once savings reach top €30,000. That 3 per cent rate is also before deposit interest retention tax (Dirt) is factored in, and the tax obligation will cut the interest by one third.
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Raisin Bank offers one of the best rates for cash on deposit, with a return of 3.1 per cent on sums up to €100,000, without having to lock them into a fixed term, currently available. All deposits are protected by Germany’s guarantee which – like the Irish guarantee – covers sums up to €100,000. But savers do have to file a tax return themselves, as Raisin does not deduct Dirt at source like Irish banks do.
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There are other options on the table, with the likes of Bunq, Revolut, N26 and a host of Government bonds offering Irish savers okay value for money, but convincing people of the benefits of acting is not easy.
Which takes us to the elephant in the room – or the elephant in the hallway, planning to enter the room soon. A new Government savings scheme is to be announced by Minister for Finance Simon Harris in his budget later this year.
While the details have yet to be confirmed, the plan is to make investing easier and more transparent to help Irish consumers move their cash from poorly performing bank accounts to more lucrative managed funds.
As we have highlighted, money left in a typical deposit account might earn a saver 2-3 per cent (pretax) if it is doing well compared with an index fund which might return closer to 10 per cent. Returns at that rate could be made even more attractive if, as seems likely, the State will style its new scheme on the Swedish model, which sees savers spared regular capital gains and income taxes and face an annual charge based on the total sum saved above a certain limit.
“We want to make investing simpler, clearer and more accessible for ordinary people, and help their hard-earned money work harder for them over time,” Harris told an investor forum hosted by the Central Bank of Ireland at the end of March.
‘Following the ECB’s first interest rate increase in over a year, Irish savers should be asking whether their money is working hard enough’
— Nick Charalambous, Alpha Wealth
“This will be a priority for Government. Our aim is to legislate for the framework in 2026 and to allow accounts to be offered from 2027.”
He said the account would be designed as a “simple, one-stop option” for individuals, adding that the Government wanted to “simplify and adapt the tax framework to further support retail investment”.
“Ireland still does not have a sufficiently diversified savings and investment culture. Too much of people’s hard-earned savings remains in low-yield deposits, where inflation can erode value over time.”
It seems like Harris will be pushing an open door among the vast majority of Irish adults.
Almost three-quarters say they will be open to investing for long-term wealth-building rather than relying on low-interest cash deposits, if the Government introduces simple, tax-efficient investment accounts, according to research from Royal London Ireland published last week.
The survey found that one in five said they would “definitely” invest, while 54 per cent said they would “possibly” consider it.
“These findings suggest that people in Ireland may be more open to investing than is often assumed, particularly where the process feels straightforward and easy to understand. Just 2 per cent of respondents said they already invest,” said the chief executive of Royal London Ireland, Noel Freeley.
“What really stands out from the research,” he continued, “is that the barriers are less about fear of losing money, and more about access to information and feeling informed enough to make a decision. That gap between intention and behaviour is particularly interesting.”
Among those who already save regularly, 56 per cent said they would possibly invest if simple, tax-efficient investment accounts were introduced, compared to 44 per cent of those who do not currently save. Savers are also almost twice as likely to say they would “definitely” invest, at 21 per cent, compared to 12 per cent of non-savers.
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“Overall, the research highlights strong willingness to consider investing under the right conditions, with clear differences in confidence, experience and financial circumstances shaping how people engage with the idea,” Freeley said. “Importantly, the findings suggest interest is not limited to those with previous investment experience or large amounts of money to put aside, but extends across a broad range of consumers looking to build longer-term financial security.”
Irish savers might expect to see better returns on their money irrespective of whether or not they do anything as a result of the ECB’s rate increase last week, although past experience tells us not to expect much from Irish banks. “Following the ECB’s first interest rate increase in over a year, Irish savers should be asking whether their money is working hard enough,” says Nick Charalambous, the managing director of Alpha Wealth.
He says Irish banks “have historically been slow to pass on ECB rate increases to savers, and the gap between what your main bank is offering and what is available elsewhere has never been more visible. Now is a good time to review where your cash is sitting and whether it is working as hard as it should be.
‘In general, rates of 3 per cent or slightly more are currently available. But this might increase over the coming weeks, especially if the ECB hikes rates again in July’
— Daragh Cassidy, Bonkers.ie
“Many households still hold savings in low-interest accounts, losing ground to inflation every month. At 3 per cent inflation, €10,000 today has the purchasing power of just €8,626 in five years. Rates of 3 per cent and above are now available through online platforms and European deposit providers, with Raisin topping the table at 3.10 per cent, meaning a saver with €50,000 could earn over €1,000 more per year simply by switching,” he says.
Charalambous points out that “a simple way to approach this is to think in three time horizons”.
He suggests that short-term savings of up to three years “are best kept in deposit accounts with guaranteed protection up to €100,000 per institution”.
Medium-term money, which he suggests is from four to 10 years, “may benefit from a blend of deposits and investments as inflation becomes a greater risk than volatility. And for long-term savings of 10 years or more, a structured investment strategy appropriate to your risk profile will almost always outperform cash over time,” he says.
Daragh Cassidy, of price comparison and switching website bonkers.ie, has noted that savings and deposit rates have begun to creep up over the past few weeks. PTSB, Raisin, Bankinter and Bank of Ireland are some of the providers that have adjusted some of their rates upwards.
“In general, rates of 3 per cent or slightly more are currently available. But this might increase over the coming weeks, especially if the ECB hikes rates again in July,” he said.
He warned, however, that the “devil is in the details. Some of the headline rates you might see advertised only apply for one year or on balances up to a certain limit. So make sure you do your research so that you know exactly what rate you’re getting, and for how long.”
He suggested those with a longer-term savings goal should consider placing their money in an investment policy or managed fund from the likes of Aviva, Irish Life or Zurich, “which will invest in a mix of shares, commercial property, commodities and bonds, as it will provide the potential for higher returns. However you’ll be subject to taxes, fees and charges, so even here getting a half-decent return can be tough, unless markets are highly in your favour.”
