Year begins on high note for depositors

ANYONE depending on deposit income will welcome all the speculation about excessive domestic credit growth: the more we all borrow, the more likely the Central Bank is to raise interest rates.

The annual deposit rate survey from National Deposit Brokers (NDB) shows how 1996 ended, and 1997 began, on a good note for depositors with most deposit rates up slightly on earlier periods during 1996. However, the rates which are of greatest importance to most ordinary savers - one and two-year deposit accounts (especially the Special Savings Accounts) were down slightly on those available at the end of 1995 and the beginning of 1996.

NDB believes that interest rates could rise by one quarter to a half a percentage point during the first part of 1997. Part of this rise can be attributed to the unexpected rise in consumer borrowing towards the end of last year and the desire of the Central Bank to keep borrowing under control. But the EMU convergence, that is, whether inflation and ultimately the interest rate/exchange rate policy can be kept under control and the pound/sterling exchange rate relationship are the other two keys to interest rate levels.

If the predicted early, slight rise in rates has "the required affect on credit growth, inflation, etc, then rates should remain steady for the remainder of the year." But NDB warns that the Central Bank may still "move suddenly" at some stage in the year if there appears to be any threat to Ireland's expected participation in the EMU.

To give depositors a better idea of the real rates on offer throughout 1996, NDB has averaged out the rates from various deposit takers accounts and used this to compare them to similar institutions. The sum used is £50,000, the rate is that of January 6th, 1997 and the accounts considered are demand, one month, three months, 12 months, 24 months and 30-day notice. The averages for each group of institutions are as follows:

The commercial bank rankings stayed virtually the same during 1996, with Equity Bank at the top and ACC at the bottom. The sector average at the beginning of 1996 was 5.19 per cent, a difference of just 0.29 per cent which NDB describes as "a more consumer friendly reflection of the increase in rates during the year, than that which the clearing banks passed onto their clients". In the case of the building societies, the top rate position went again to Irish Nationwide with ICS "once again bringing up the rear". NDB's view is that the building societies, like the clearing banks "were very mean in passing on the rate increases during the year to their customers.

The rates available for 30-day notice Special Savings Accounts have gone up by about half a percentage point at the end of the year on the previous year but one and two-year fixed rates have only changed slightly in the year. The following are the top two-year fixed SSA rates available as of January 6th, 1997.