Irish savers are losing out on more than €5bn annually due to low interest rates being paid by banks and are now subsidising borrowers.
Irish banks have been criticised in recent weeks for failing to pass on interest hikes for savers despite reporting bumper profits in their H1 results.
Saving rates offered by the main banks range from 0.01% to 2% despite the main European Central Bank increasing its main rate to 4.25% last month.
Minister for Finance Michael McGrath on Tuesday urged banks to increase the rates they pay savers, and Minister for Public Expenditure Paschal Donohoe has encouraged savers to deposit their savings with more competitive banks in other EU countries where rates of up to 4% are being offered.
Impartial Financial Advice Ltd estimates that approximately €140bn of retail overnight or demand deposits with Irish banks are earning 0.04% to 0.28% interest, and a further €63bn of company deposits are earning 0.08%.
The company believes inertia, a lack of awareness and a fear of the unknown are responsible for Irish consumers not exploring their more lucrative saving options.
“At Impartial Financial Advice Ltd for example,” says Vincent Digby, managing director of Impartial, “we have access to a range of AAA-rated Money Market Funds yielding approximately 2.9%.
“For an SME with €500,000 on deposit the SME will earn an additional €14,500 over the course of a year – that’s a lot of money to leave on the table.
“And the same is true for a lot of charities, or personal savers, or retirees with self-administered pension funds who may have similar or much larger amounts languishing on deposits with minimal returns. Not considering other viable options is not prudent financial behaviour.”
Digby continued by saying that banks “count on you doing nothing and leaving your money where it is,” and urged consumers to resist status quo bias and better inform themselves of their options.
He highlighted money market funds managed by global giants such as BlackRock and BNY Melon, which offer higher yields and are typically used by institutions and sophisticated corporates to manage their cash and liquidity needs.
Impartial estimates that a saver with €200,000 on deposit with a money market fund over a year would earn €5,800 in interest, and a saver with €500,000 on deposit would earn €14,500 in a year.
(Pic: Getty Images)
