# With ECB set to go will Variable interest rates on deposits go up



## maccs (5 Apr 2011)

Hi, just wondering with it predicted that the ECB will increase thier interest rate in the coming days, is it likely that all bank will then follow suit and increase the interest rates they are offering on variable interest rate deposit accounts?

Would it be advisbale to hold off from opening fixed term deposit accout for a few days/week or so, to see it variable rates are increased first?


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## Chris (6 Apr 2011)

It is probably going to be likely that a bank will increase interest rates on deposits, but given the state of Irish banks and their current interest rates I don't think there is much room for maneuver. From what I have seen, deposit rates here are already considerably above rates offered in Germany and France e.g.
I would not expect a flood of competitive rates to come.


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## Sunny (6 Apr 2011)

It is unlikely that deposit rates will change. Banks will try and improve their margins by increasing loan rates but trying to keep deposit rates the same. Historically, depositors never get the full benefit even in the good days.


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## Lightning (6 Apr 2011)

Great question. 

Term deposit rates have already started to price in ECB rate increased. Best buy rates for 2 years and 3 years have soared in recent weeks. The 1 year rates have increased slightly in recent weeks. 

AIB must increase their variable Regular Saver deposit rate if the ECB increases rates as it is in their T&C's. 

I expect some other increases in variable deposit rates over the next few weeks but not many at all. 

The deposit rate for a 1 year term were 6.5% only a few years ago. If ECB rates soar, deposit rates, should also in theory soar.


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## Lightning (9 Apr 2011)

No news from Rabo. 

Rabo were always the quickest to decrease rates when the ECB dropped their rate. Shame the same principal does not apply to rate increases. 

Looks like Rabo, and many of the other banks, are going to cream more margin off variable rate savers.


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## Bobby1 (9 Apr 2011)

How can you say banks are creaming margin off variable rate savers, ECB is at 1.25% with variable rate products paying up to 3.50%-3.75%!!! Surely they are losing, so at least with the ECB increase, their margin loss will be narrowed, which is a good thing i think as banks need to start covering the losses they are making on core business.

The constant demand from customers for higher and higher rates is becoming unsustainable


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## marksa (9 Apr 2011)

Bobby1 said:


> How can you say banks are creaming margin off variable rate savers, ECB is at 1.25% with variable rate products paying up to 3.50%-3.75%!!! Surely they are losing, so at least with the ECB increase, their margin loss will be narrowed, which is a good thing i think as banks need to start covering the losses they are making on core business.
> 
> The constant demand from customers for higher and higher rates is becoming unsustainable


 
Totally agree, it is one of the first steps required to normalise the funding base of the Irish banks, to stop this insane pricing on deposits. In 2008, an equivalent spread over ECB would have meant banks paying up to 7% for demand deposits - which they were nowhere near doing. The only reason the deposit prices are at 3.50% currently is because absolute market rates such as ECB are so low. When (not if) ECB returns to rates closer to 3%, if will give banks room to build margin, and god-forbid, maybe even make profits! (i.e. stop sponging off the tax-payer for capital to offset losses)


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## Lightning (9 Apr 2011)

There is merit to saying that deposit rates in Irish banks were at record margins, for some savings products in some banks, and that this could not continue, but there is also some creaming going on. 

Take Rabo for example. They have matched all recent ECB rate decreases par from par with variable rate decreases. As soon as the ECB increases rates, Rabo have failed to pass on the increase to their variable customers. 

Rabo rate history: [broken link removed]

ECB rate history: http://www.homefinance.nl/english/international-interest-rates/ecb-refinancing-interest-rate.asp


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## marksa (10 Apr 2011)

CiaranT said:


> There is merit to saying that deposit rates in Irish banks were at record margins, for some savings products in some banks, and that this could not continue, but there is also some creaming going on.
> 
> Take Rabo for example. They have matched all recent ECB rate decreases par from par with variable rate decreases. As soon as the ECB increases rates, Rabo have failed to pass on the increase to their variable customers.
> 
> ...


 
I agree with the analysis, that they have not passed on the increase as yet, but if they are paying 2.00% (1.80 on business) then they are still paying a negative margin of 0.75%, so hardly creaming it. They are just reducing the negative margin. Also, maybe they do not feel the need to acquire further deposits at this time. Bear in mind that less than 5% of Rabo's deposits are coming from Central Banks, with the vast vast majority coming from long-term funding (probably greater than 5 years). The relatively small amount of funding they are taking from the Irish market does not warrant paying up significantly if they can raise term funding at probably similar, or less, premium over mid-swaps. The main reason for them taking funding from Ireland is for diversification, not necessarily to make/lose money.


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## Bobby1 (10 Apr 2011)

marksa said:


> I agree with the analysis, that they have not passed on the increase as yet, but if they are paying 2.00% (1.80 on business) then they are still paying a negative margin of 0.75%, so hardly creaming it. They are just reducing the negative margin. Also, maybe they do not feel the need to acquire further deposits at this time. Bear in mind that less than 5% of Rabo's deposits are coming from Central Banks, with the vast vast majority coming from long-term funding (probably greater than 5 years). The relatively small amount of funding they are taking from the Irish market does not warrant paying up significantly if they can raise term funding at probably similar, or less, premium over mid-swaps. The main reason for them taking funding from Ireland is for diversification, not necessarily to make/lose money.



I can see where CiaranT is coming from by suggesting Rabo are slow to pass on increases, but agree with the above, when their standard rate for demand savngs is 2%, they are still making a loss on deposits against the ECB base rate, they are not creaming margin, only narrowing the gap on the loss they are making. Taking just one example as Rabo prob isnt a good one, with everyone pulling deposits from banks and flocking to the likes of Rabo, why should they increase!!! They are going to get the business regardless. 

Personally i would like banks to not pass on any of the increase for savings, irish banks especially need to start re-building their core businesses and the vital part of this obviously is making profit. i also find it a bit much of people to moan about the state of banks, but then not even give them a chance to earn a profit, especially when they are paying rates well ahead of the market to begin with.

 As a taxpayer I don't want to keep propping them up, and any increase on savings will mean even bigger increase on mortgage rates, something has to pay for increases in mortgage rates when deposit rates are flying up, hard-pressed mortgage holders are subsidising interest rates for people with lump sums to invest which isnt right, and this constant obbession in the media of interest rates for savers in my opinion isnt helping this matter at all


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