Are deposit rates likely to go up?

[Evander73]

I've a lump sum to reinvest. My current bank is offering 3.5% which appears to be the best offer on the market at the moment. I don't envisage I'll need the money in the medium future i.e. 3-5 years, so in light of the low deposit rate on offer at the moment I'm thinking of putting it into An Post savings bonds - 3 or 5.5 years. It gives a guaranteed return of 10% and 21% respectively (DIRT free) therefore equivalent to 4.3% and 4.7%.

Question is - what's the general concensus with regards to the trend of deposit interest rates over the next 3 to 5 years?

I'm thinking rates are so low at the moment that they will inevitably rise over this period especially as the main ECB rate is almost certainly going to increase in the short to medium term - but when and by how much is the thing - or is this a real crystal ball question?

I hear this morning BOI have indicated loan rates will rise but deposit rates will fall due to the need to recapitalise the bank - it could be the start of a downward trend across all banks.

 

[fto]

base rate interest rates are due to increase at the end of the year so the rates you receive should increase.

 

[Bobby1]

But banks are paying well in excess of base rates at moment... EURIBOR 3 month rate is 0.64%, and you can get deposit rates up to 3.50% for 3 mths... banks are covering the difference themselves (well in my opinion mortgage holders are actually paying for deposit customers to enjoy better rates).

If banks are paying over the odds for deposits, they are going to claw it back somehow and mortgage holders are getting hit as a result. Also banks wont be too quick to increase rates if and when base rates start to increase, as they will want get back some of the margin they have lost over the last 12/24 months,

 

[Lightning]

Some people argue that deposit rates will fall due to less competition (banks) and 'unsustainable rates'.

Some people argue that deposit rates will rise as the ECB rates are expected to increase rates in early 2011 (or so the futures market says), banks need to increase their loan to deposit ratio and conversely aggressive competition.

Also, savings rates are 4% in Spain, the Libor spread to UK deposit rates is greater then the Euribor spread to Irish deposit rates. Hence, there are higher savings spreads in other EU countries, suggesting Irish savings rates are more sustainable than PTSB and BOI like to make out.

In recent weeks, savings rates have 'stabilised' in Ireland, they are no longer decreasing at the rate that they previously were.