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Deposits war heats up: Irish savers starting to see much higher rates offered

Looking outside the traditional banks will open the door to much more competitive interest on your savings


There’s a certain (cruel?) irony perhaps in the fact that just as interest rates start to decline in Europe, Irish savers are starting to see some of the best rates come to market.

While the decision by the European Central Bank (ECB) last week to cut rates by 25 basis points, thus bringing the main savings rate down to 3.75 per cent, will impact on a number of variable savings rates, recent weeks have seen the introduction of a number of keen offerings for savers in the Irish market.

So, is it time to lock into the new offerings from the likes of Revolut and Bank of Ireland – or seek out some of the newer alternatives to deposits available from the likes of Trade Republic and Lightyear?

The new offerings

Fintech Revolut put the frighteners on the domestic players when it launched rates of up to 3.49 per cent last month. It’s a market-leading rate – other domestic banks offer as little as 0.01 per cent on instant access money – but it does come with restrictions.

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Standard account holders will get just 2 per cent, which is less than Bunq’s 2.46 per cent. To get the full amount, you’ll need an Ultra account, which costs €45 a month/€540 a year. The latter may make sense if you’re already paying current account fees with another bank, and have substantial savings – you would make €1,745 in interest on savings of €50,000 a year, for example.

Of course as convenient as instant access accounts are, the downside is that the rates are variable and can be changed – so you may not get a full year at the 3.49 per cent if rates start to fall further in Europe.

If you’re not sure what rate you might be entitled to, just click on the savings option in the app, and it’ll show you how much you can earn.

Finally, remember that deposits with Revolut are covered by the Lithuanian deposit insurance scheme, rather than the Irish one. This covers savings of up to €100,000.

For those willing to lock away their money, Bank of Ireland’s new offering may be more attractive; if you lock in for two years, you can get a return of 5.98 per cent over the term.

What is long overdue, however, is an improvement in the offering from State Savings – the best rate here is just 2 per cent, and that’s on a 10-year term

And Dutch bank Bunq, which has seen its Irish deposit base jump by more than 100 per cent since the start of the year, has also improved its offering. It now guarantees an annualised rate of 2.46 per for three months.

So, might we see a further step up in competition now?

The imminent arrival of Avant Money’s new deposit offering should bring some further competition. But we’ll have to wait and see: a spokeswoman for the subsidiary of Spanish bank Bankinter says that the financial institution can’t comment “on potential timings or product information at this time”.

What is long overdue, however, is an improvement in the offering from State Savings – the best rate here is just 2 per cent, and that’s on a 10-year term.

This means that if you want to do better than these rates, you will have to consider other options; but just be clear about where you’re putting your money first.

Other options

Trade Republic

Why not make like the Irish banks and earn interest at the same rate they do – the ECB deposit rate – by putting your money with Trade Republic, a German digital investment platform and bank.

Trade Republic offers Irish-based investors the option to “invest, spend and bank”, and, as well as the chance to invest in more than 9,000 stocks and exchange-traded funds (ETFs) from as little as €1, you can also earn as much as 3.75 per cent on your cash up to €50,000. This rate kicks in tomorrow, June 12th; until then, it was 4 per cent. Interest accrues daily and is paid out monthly. You can withdraw your money at any time.

A spokeswoman says the platform, which is regulated by Bafin and the Bundesbank, promises to “pass the ECB deposit facility rate to our customers in full”.

While some products have been liable to a waiting list – until May 28th for example, there was a waiting list to receive a Trade Republic debit card with 1 per cent Saveback benefits – this did not apply to deposits.

What about protection: As it’s not a deposit account, your money won’t be covered by the deposit guarantee scheme, which offers German government protection on deposits of up to €100,000. Rather, Trade Republic says funds in its cash accounts are “legally protected” by up to €100,000 per cent per investor, and they are held in an omnibus trust account at one of its four banks – Deutsche Bank, Citibank, JP Morgan and HSBC.

The protection comes then from these banks being part of government schemes in their respective jurisdictions (deposits held at Citibank and HSBC are covered by the Irish scheme, for example), a spokeswoman says.

Tax: Trade Republic says it does not withhold taxes on interest so you will need to declare Dirt to which you will be liable yourself.

Raisin

One of the oldest of the deposit alternatives operating in Ireland – it first targeted Irish savers back in 2019 – German bank Raisin is authorised by Bafin and regulated by the Central Bank of Ireland. Now with more than one million customers, it operates a pan-European savings proposition and allows Irish customers to lodge their savings with a number of European deposit specialists – many of whom offer better rates than their Irish counterparts.

For example, Sweden’s Nordax Bank is offering a rate of 3.4 per cent over one year on deposits of between €2,000 and €85,000, while Latvia’s Blue Or has a rate of 3.45 per cent on deposits of up to €100,000.

Interestingly, some of the better rates on the site are over the short term – 3.5 per cent AER with BFF Bank, for example, available over just three months. The Spanish bank’s one-year term is just 3 per cent, indicating that banks are starting to factor in ECB rate cuts, perhaps.

Protection: This will depend on the particular bank you sign up with but, typically, your money will be covered by the respective country’s schemes – though this may not always come to €100,000. For example, Nordax Bank is covered by Sweden’s statutory deposit scheme but this only covers deposits up to 1,050,000 Swedish kroner per account holder (about €90,000).

Younited on the other hand, is a French bank, and deposits with it are covered by up to €100,000 through the French Deposit Guarantee Scheme.

While Ireland has a double taxation treaty with Portugal, so you can claim this back, it may make the process more cumbersome

Tax: Again, this will depend on where you put your money. While interest earned on deposits is liable to Dirt at a rate of 33 per cent – and if you earn this outside Ireland, you are supposed to notify Revenue and pay this over – some countries will impose their own withholding taxes. For example, if you put money with Banco Português de Gestão, it will apply this tax at a rate of 28 per cent.

While Ireland has a double taxation treaty with Portugal, so you can claim this back, it may make the process more cumbersome. Similarly, Spain has a withholding tax (19 per cent) though you can avoid this by filling out a Spanish tax residency declaration form, if allocating to a Spanish bank.

Lightyear

Lightyear is another investing app, which also offers a return on cash. Backed by Virgin founder Richard Branson, it is authorised and regulated as an investment firm by the Estonian Financial Supervision Authority, and first started targeting Ireland back in 2022.

It is a “multicurrency investment account”, which gives investors low-cost access to stocks, funds and interest on uninvested cash. Like Trade Republic, it promises to track the ECB rate and, according to a spokeswoman, it passes interest back to its customers at the current bank rate, minus a flat 0.75 per cent fee. So, its current rate on cash is 3 per cent, based on an ECB deposit rate of 3.75 per cent.

“There’s instant access, no minimum deposit criteria, and no maximum thresholds either,” she says. In addition, you can also go for higher rates by taking on some currency risk; Lightyear is offering Irish customers 4.5 per cent on both USD and GBP (again, this is the relevant central bank rate minus the fee of 0.75 per cent).

The investment platform also offers a further euro savings product, which offers a yield of 3.82 per cent, and is based on Blackrock money market funds. However, this is not available to Irish customers. It is understood that this is due to the withholding tax that would apply to such funds for Irish residents, the imposition of which would mean that Irish customers would just end up with the same return – ie around 3 per cent – as the cash rate.

Lightyear says it ‘never uses customers’ money or securities to cover its own needs’, and all customers’ money is kept in separate, segregated accounts

Protection: According to the investment company, savings with Lightyear “are not equivalent to a bank deposit” and thus your money is not covered by Estonia’s deposit guarantee sectoral fund. Rather, as Lightyear is an investment company (not a bank), your assets will be protected by up to €20,000 through the Estonian Investor Protection Sectoral Fund (like Ireland’s Investor Compensation Scheme).

As a further protection, Lightyear says it “never uses customers’ money or securities to cover its own needs”, and all customers’ money is kept in separate, segregated accounts, with institutions like Blackrock and ABN Amro.

“In the event of a possible bankruptcy, this means that the client’s securities and money have remained intact and the client can receive them in full,” a spokeswoman says.

Tax: While Estonian residents will have their tax automatically deducted on deposit income, everyone else will need to report it themselves. So, for Irish residents then, this means a Dirt declaration, according to a spokeswoman for Lightyear. This can be declared via your income tax return.