Irish savers missing out on interest earnings

Irish household deposits have hit a record high, according to data published by the European Central Bank.

€1.1 billion was added to accounts held with Irish credit institutions in February, according to the ECB, more than reversing the €200m decline recorded in January.

It meant that total deposits held in Irish institutions hit €153.6bn in the month.

Deposits here grew rapidly during the height of the Covid-19 pandemic, as restrictions limited workers’ ability to spend.

While the pace of growth has normalised over the past year, deposits have continued to rise.

However the ECB figures also show that vast majority of that money was being held in overnight deposit accounts. That means it wasn’t gaining interest for holders.

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“One of the unusual features of the current structure of the Irish household deposit market is the fact that Irish households continue to make such extensive use of what are very high convenience, but ultimately very, very low paying account balances in overnight-type accounts similar to current accounts,” said economist Simon Barry.

“In Ireland the share of overnight in the total is about 90%, and that means that Ireland is an outlier in the wider eurozone – there’s no other country where the share of overnight balances is as high as it is in Ireland.”

Mr Barry said overnight-type accounts have a 55% share of the eurozone market – well below the levels seen in Ireland.

“What has been unusual in Ireland is that, since the ECB started interest rates in the summer of 2022, we’ve seen in almost all other countries a pretty sizable shift away from overnight balances,” he said. “But in Ireland, that has started to happen, but the process so far has been pretty slow and very modest.”

He said that Irish consumers would have traditionally been better at holding their deposits in longer-term savings accounts, but that the “inertia” of the past few years seems to have changed that approach.

“Before the ECB started raising interest rates, we had had a decade where interest rates were at ultra low levels – the ECB’s deposit rate, for example, was either at zero or negative for a full decade before it started raising interest rates,” he said. “So this was a non-issue for a long period of time – where the difference between term deposit rates and overnight rates was effectively zero.

“But what is unusual now is the fact that, even though term rates are and have been for a while, way higher than overnight rates, we haven’t seen really much by way of progress in household deposits shifting balances from overnight into term deposits.”

Overall, though, Mr Barry did say that the level of deposits on Irish credit institutions’ books did point to the fact that Irish consumers’ finances are – on average – in a much healthier state than would have been the case in the past.

“The loan to deposit ratio, at its peak, was over 170% – so way more loans than deposit balances,” he said. “As of today, that’s down to about 66%, so in other words the Irish household is in very good shape overall in terms of the aggregate position.”

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