ALMOST half of the savings of households sit in demand deposit accounts, with much of this money earning little or nothing. A demand deposit account can be drawn on without prior notice.
Fears about the possibility of banks collapsing and the State defaulting on its debts have prompted people to keep money in demand deposits so they can withdraw it immediately. But these savings are earning a pittance because interest rates on demand deposit accounts at a number of banks have now fallen to as low as 0.01pc. An interest rate of 0.01pc means that €1,000 deposited for a year would earn interest of just 10c, before tax.
Households have some €81.5bn on deposit in banks and building societies, but 45pc, or €36bn of this is in demand deposits, according to figures from the Central Bank. People want immediate access to their savings in case the economic crisis gets worse or they lose their job, but consumers are paying a high price for having ready access to their deposits as many banks are now paying paltry interest rates.
Six of the leading deposit takers in the Irish market are paying interest of less than 1pc, according to the Financial Regulator. Putting €10,000 into a demand deposit account with AIB, Bank of Ireland, Permanent TSB and ACC will see you earn just 0.1pc, according to the Regulator. Paying less than 1pc are ACC, Irish Nationwide Building Society and EBS Building Society, according to a survey carried out at the end of April this year.
An interest rate of 0.01pc means that €10,000 deposited for a year would earn interest of just €1, before tax. After deposit interest retention tax (DIRT), the saver would be left with just 75c. DIRT tax has gone up to 25pc since the Supplementary Budget in April.
But the good news is that there are plenty of banks and building societies out there offering generous savings rates, despite European Central Bank rates having fallen to as low as 1pc in May. You can earn good interest rates by putting your money in demand deposit accounts offered by the likes of Anglo Irish Bank, First Active, National Irish Bank, Northern Rock, Postbank, RaboDirect and Ulster Bank. And if you are prepared to put even some of your money into a fixed-rate account you will do better again, with a range of banks offering high interest.
Those willing to save monthly have been courted hard by deposit takers for a while now and can still get good rates from the likes of Anglo Irish Bank, EBS Building Society and Bank of Ireland. Almost all deposit takers in the Irish market are either fully guaranteed by the Irish state or by the governments where the bank or building society is headquartered.
For a full range of the latest rates see www.irishdeposits.ie, while the Financial Regulator’s website, www.itsyourmoney.ie, has details on the different deposit guarantee schemes for each deposit taker in the Irish market.
Charlie Weston is Personal Finance Editor of the Irish Independent
Tags: Charlie Weston, finance tips, Savings
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