Irish banks pay roughly the same on deposits as euro area banks?

[Brendan Burgess]

From the Central Bank's Retail Interest Report https://www.centralbank.ie/docs/def...nterest_rate_statistics.pdf?sfvrsn=10566a1a_3

I don't pay much attention to deposit rates but is this correct?

 

[Brendan Burgess]

It's for new deposits so maybe it is correct.

AIB

 

[Lightning]

Firstly, last time I checked, about 97% of Irish household deposits are in instant access and notice accounts. Only about ~3% are in term deposits.

For the ~3% in term deposits, rates are good from Irish banks. Believable that Irish banks are around average versus EU banks.

For the ~97% in instant access/notice accounts, Irish banks pay 0.13% on average. This is pathetic even in the current lower interest environment.

The CBI and the media and banks put too much focus on the term deposit rates when it is such a small portion of deposits.

I am convinced that Irish banks are not cutting term deposit rates aggressively because it matters very little for their bottom line and they don't want media questions asked about why they are not simultaneously cutting mortgage rates.

 

[joe sod]

If irish bank's term deposits are comparable with their european peers, how come they are not up on the raisin platform attracting deposits from all over Europe?
Also how come the state savings are able to get away with such miserable interest rates themselves, their 3 year savings bond only yields 4% in total after 3 years whereas AIB delivers 5.58% gross after 2 years from your table?

 

[Lightning]

Irish banks are not on Raisin because they don't want to attract deposits from all over Europe because they don't need the deposits.

State Savings rates are rubbish because they get away with it because those who put money into State Savings products are often not that price sensitive.

 

[ClubMan]

State Savings rates are rubbish because they get away with it because those who put money into State Savings products are often not that price sensitive.

Also, similar to the banks, I'm not sure that the state has a pressing need to raise funds via retail products such as State Savings and where they do need funds there are probably more efficient/cost effective ways with better economies of scale to do it such as via bond issues?

NTMA sells €1 billion of bonds in auction today

The National Treasury Management Agency has today completed an auction of €1 billion of benchmark Irish Government bonds.

www.rte.ie

 

[Dr Strangelove]

where they do need funds there are probably more efficient/cost effective ways with better economies of scale to do it such as via bond issues?

In May 2010 the bond markets boycotted Ireland.

Meanwhile Joe Soap was buying more prize bonds and savings certs than ever! There was a material contribution to Ireland’s financing needs from state savings in those years and it saved us from borrowing more from the EU and IMF.

So the moral is that it’s good for a sovereign to have diversified funding sources.

 

[PinkLloyd]

In my opinion, I think Irish people have a deep distrust of Irish banks, are reluctant to put money on term deposit with them, and are happy to make do with a small nett loss in return for the perceived comfort of being able to get their money out immediately when things go wrong.

It's not just rates that are important though; for example, to avail of the current best term deposit rate from an Irish bank, I would also need to open a current account with them, which I don't need, and which would incur charges, paperwork and other bureaucratic overhead. With Raisin, as a once-off, you open a single free account using a smartphone and can deposit in any of dozens of EU and EEA banks with absolute ease, while also getting better rates. (yes, there's the tax return, but that's only a downside if you don't already do one each year).

 

[ClubMan]

So the moral is that it’s good for a sovereign to have diversified funding sources.

Maybe so, but the total outstanding value of State Savings mid 2023 was "only" c. €25Bn and in recent years the annual (net I think?) inflows have been c. €1Bn p.a.

NTMA increases rates for State Savings products

Rates on new fixed term products to increase. The total tax free return on the new fixed rate products are as follows: 3-Year Savings Bond from 1.0% to…

www.ntma.ie

In contrast, the NTMA raised €4Bn on the bonds market so far this year alone.

So I suspect that the contribution to the state finances from State Savings is marginal in the greater scheme of things. And the management costs of such retail products are probably higher than wholesale bonds.

 

[Dr Strangelove]

So I suspect that the contribution to the state finances from State Savings is marginal in the greater scheme of things.

It’s at 8% of total borrowing. IIRC it was in the teens in the early 2010s. That’s material.

And the management costs of such retail products are probably higher than wholesale bonds.

Over ten years state savings yields about 2% and market bonds about 2.5% right now. Even factoring in admin costs that’s a hell of a lot cheaper when we are talking about billions.

 

[TomEdison]

Over ten years state savings yields about 2% and market bonds about 2.5% right now. Even factoring in admin costs that’s a hell of a lot cheaper when we are talking about billions.

Yes, but if you raise rates to attract more money into State Savings you erode that 0.5% margin.

 

[blackdog]

On "State Savings", there's been a paradigm shift in how these have been priced relative to central bank rates in the past 1-2 decades, combined with great enthusiasm to re-price when ECB rates fall which is somehow unmatched when ECB rates move higher.

Between mid 2001 and 2007, the ECB deposit rate hovered between 1% and 3%, while 5 year Savings Certs paid around 3% AER:

State Savings Schemes

State Savings Schemes Dáil Éireann Debate, Tuesday - 4 July 2023

www.oireachtas.ie

Rates were left unchanged for almost a decade, before being marked sharply higher in 2007.

By contrast, the last reprice (early 2023), with ECB rates at 3.00%, resulted in a Savings Cert AER of 1.74% - so deliberately set well below the deposit rate, despite the fact we're talking about a 5 year term.

Looking beyond the cold comparisons to international bond market pricing discussed above, I'd suggest that there's a "social good" to at least pricing government savings products at a rate that allows the domestic small guy get into a savings habit and accumulate some wealth (while remaining broadly in line with central bank rates)...

 

[THE_Chris]

Bear in mind too that State Savings do not attract DIRT, so their rates could generally be thought of as 1/3 higher.

 

[joe sod]

Looking beyond the cold comparisons to international bond market pricing discussed above, I'd suggest that there's a "social good" to at least pricing government savings products at a rate that allows the domestic small guy get into a savings habit and accumulate some wealth (while remaining broadly in line with central bank rates)...

Also regarding bond markets the biggest buyers of Irish bonds are actually the Irish financial institutions, the Irish banks, so the government indirectly gets the benefit of all that cheap capital sitting in Irish bank accounts since they use it to buy government bonds. If the banks were charging higher interest rates, would it push up the interest rates that the Irish government would need to sell their bonds. It's an international market but the Irish financial institutions seem to be the biggest buyers

 

[Corola]

Bear in mind too that State Savings do not attract DIRT, so their rates could generally be thought of as 1/3 higher.

It's almost 50% higher. A rate of 2% on State Savings is equivalent to ~3% gross on deposits that attract DIRT.

2/(1-0.33)=2.985