9% AER = 2.91% AER so interest rate is 2.91%?

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sadie

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Bank of Ireland are offering a 3yr fixed term deposit account. They say the interest is 9% over the term, but the AER is 2.91% per year.
So doesn't that mean that my money doesn't in fact earn 9% a year interest, it only earns 2.91% every year?
So it's the AER I need to look at not the 'over the term' because I won't be getting 9% of my money back on top of my capital at the end of 3yrs will I??
 
sadie said:
Bank of Ireland are offering a 3yr fixed term deposit account. They say the interest is 9% over the term, but the AER is 2.91% per year.
So doesn't that mean that my money doesn't in fact earn 9% a year interest, it only earns 2.91% every year?
So it's the AER I need to look at not the 'over the term' because I won't be getting 9% of my money back on top of my capital at the end of 3yrs will I??
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You will be because of compound interest. You earn interest on the interest each year so after three years you will see a 9% return.
 
It's a poor offer.
Interest rates will rise next year and you'll be locked in at 2.91%
Maybe, go for the instant access account with INBS 3.75% or the similar account with Nationwide UK paying 3.55%?
 
blass said:
It's a poor offer.
Interest rates will rise next year and you'll be locked in at 2.91%
Maybe, go for the instant access account with INBS 3.75% or the similar account with Nationwide UK paying 3.55%?
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What makes you think interest rates will rise next year? Some banks- AIB, Bank of Ireland, EBS, PTSB, INBS are paying higher rates on their deposits then on lending which anyone will see is not a favourable situation for an insitution to find itself in and can only last so long as they are effectively not making much (if any profit) on these 2 business areas.

Article from Irish Indo disagrees with you.

http://www.independent.ie/opinion/c...tes-likely-to-sting-the-consumer-1880587.html

I would be of the same opinion- banks cannot sustain these savings rates for much longer- so I really fail to see how they can increase. I know ECB is expected to increase next year but banks funding is not wholly priced on ECB base rate, you will see mortgage rates increase as banks try to get back some of the margin they have lost over the last 12-18 months with cutting rates with every ECB cut, I really cant see savings rates increasing further, if post NAMA, banks can raise funds cheaper then they do at present, they have no need to pay over the odds for retail deposits (which they are currenty).

Just my view!
 
The BOI offer is a very poor offer. Check out the best buy term deposit thread here for better rates.

Bobby1 said:
What makes you think interest rates will rise next year?
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I would bet that by the end of 2010, savings interest rates will be higher. Why?

1) According to a Bloomberg survey, the ECB will start raising rates in Q3 2010. Savings rates will go up as a consequence.

2) Savings interest rate best buys here are in line with the UK. Similar best buys in the UK exist at the same margin above BOE base rates. Hence, they is nothing strange about Irish savings rates, as implied in the Indo article, using international comparisons.

3) The capital situation of many Irish banks may not be resolved until well into 2010. There is greater pressure for the capital to come from deposits rather than intra bank lending. Nothing is about to change for a while here.

4) The opportunity cost of money. Bond issues are costing banks up to 8%, while they only have to pay less than 4% of retail deposits.

5) The possible/likely entrance of Virgin Money and Tesco into the savings market will increase competition for savers money.
 
On the original query.. Don't forget your interest earned is subject to DIRT tax. So you won't get 9% back on top of your capital unless you are exempt.
 
fungus said:
The BOI offer is a very poor offer. Check out the best buy term deposit thread here for better rates.



I would bet that by the end of 2010, savings interest rates will be higher. Why?

1) According to a Bloomberg survey, the ECB will start raising rates in Q3 2010. Savings rates will go up as a consequence.

2) Savings interest rate best buys here are in line with the UK. Similar best buys in the UK exist at the same margin above BOE base rates. Hence, they is nothing strange about Irish savings rates, as implied in the Indo article, using international comparisons.

3) The capital situation of many Irish banks may not be resolved until well into 2010. There is greater pressure for the capital to come from deposits rather than intra bank lending. Nothing is about to change for a while here.

4) The opportunity cost of money. Bond issues are costing banks up to 8%, while they only have to pay less than 4% of retail deposits.

5) The possible/likely entrance of Virgin Money and Tesco into the savings market will increase competition for savers money.
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Just to note Irish Nationwide have new savings rates in Moneymate table in the Indo this morning- 3,6,9,12 rates have reduced.

3-3.25%
6-3.30%
9-3.35%
12-3.50%

While I dont disagree with some of the points you make Fungus, we cant get away from the fact that banks are overpaying on deposits on a massive scale and I think this cut is just the latest in more to come, I believe more will follow.
 
Irish banks are in a Catch 22, on the one hand the government are breathing down their necks, ordering them to give out cheap mortgages to get the property market "moving again"; on the other hand, if they cut deposit rates to make their loans profitable all the money will bleed out to Nationwide UK, Northern Rock, Investec etc who aren't subject to the same pressure.

If there's a disconnect it's in mortgage rates, not deposit rates - have no doubt.
 
Bobby1 said:
Just to note Irish Nationwide have new savings rates in Moneymate table in the Indo this morning- 3,6,9,12 rates have reduced.

3-3.25%
6-3.30%
9-3.35%
12-3.50%

While I dont disagree with some of the points you make Fungus, we cant get away from the fact that banks are overpaying on deposits on a massive scale and I think this cut is just the latest in more to come, I believe more will follow.
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Yeah, the INBS rates were updated in the best buys table at the weekend.

I agree that in the short term rates will go down.

In the medium term, rates will be driven by ECB rates and they will, most likely, go up late next year.
 
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