Deposits looking better as ECB ponders rate rise

Predictions that European Central Bank (ECB) interest rates will rise either at the end of this year or early in 2005 may be bad news for borrowers but it's good news for savers.

Two institutions have already improved their deposit account offerings for savers who do not want to expose their nest eggs to the equity markets or have them tied them up in capital-guaranteed bonds.

First Active has issued a new edition (the eighth version) of its Elevator Account, the deposit account where the interest rate increases for each additional year that consumers save.

In the first year, the interest rate is 2.75 per cent, rising to 5.25 per cent by the fifth year. This gives a gross cumulative interest rate of 20.5 in year five, or a compound annual return (CAR) of 3.8 per cent.

The last version of the Elevator Account, issued in November 2003, also started off with a rate of 2.75 per cent, however the rates did not increase as sharply over the five years, so the gross cumulative interest rate peaked at 19.25 per cent in year five (3.58 per cent CAR).

To date, a total of €270 million has been deposited in Elevator Accounts, which are fixed-rate accounts with a maximum term of five years.

Customers can access the funds they have saved at any time, subject to a minimum withdrawal of €1,000.

The interest earned is locked in every six months, so withdrawals do not benefit from the interest earned on the amount of the withdrawal in the six-month interest period in which the withdrawal is made.

The minimum investment is €5,000 and the maximum is €500,000 for private customers.

Meanwhile, Northern Rock has added a six-month introductory bonus to its internet-only instant access account, Demand Online.

The 0.4 per cent introductory bonus takes the account's variable rate up to 3 per cent gross per annum on balances of €1,000 or more.

Even before the addition of the bonus, the Northern Rock product boasted the most competitive rate in the market for straightforward instant access or short-term notice deposits.

The bonus is payable for six months from the day an account is opened and is also available to existing Demand Online customers.

The account, available through www.northernrock-ireland.ie, guarantees that its interest rate will be no lower than the ECB base rate - currently 2 per cent - until January 2006.