What Needs to Be Done to Encourage Cross-Border Savings?

[Lightning]

Irish Times today reports today on the low rates that most savers are still getting ... https://www.irishtimes.com/business...ing-accounts-described-as-missed-opportunity/

Not enough people are shopping around for cross-border savings. It got me thinking about what needs to be done.

Firstly, obviously huge progress has been made:
1. Increased Options: A decade ago, Irish savers had limited choices outside domestic banks. Now savers have access to a large array of options, at much better rates than domestic banks.
2. Growing Market: According to Raisin, euro area households held approximately €151 billion in accounts with euro area banks outside their home countries as of August 2024, up from €95 billion in early 2020.

What needs to improve? My thoughts ...
1. Comparison Tools: Cross-border savings products should be included in state comparison sites like CCPC (Ireland's Competition and Consumer Protection Commission).
2. Comprehensive Comparison Website: Similarly, there's a need for an unbiased, comprehensive EU-wide savings product comparison website, either from the private sector or the European Commission. It does not exist today.
3. Tax Harmonization: Tax rates for Qualifying Money Market Funds (QMMF) products should be aligned with savings rates to encourage money market investment, particularly in countries like Ireland.
4. Deposit Protection: Broker deposit protection needs to be significantly increased from the current €20,000 or so level to align with US broker protection standards.
5. Anti-Fraud Measures: Stronger action is needed against deposit scam advertisements, especially those of a cross-border nature, on platforms like Google.
6. Non-Discrimination Rules: Consideration should be given to implementing residency non-discrimination rules for large banks, allowing EU residents to open deposit products regardless of their country of residence within the EU.
7. Automated tax deductions at source for bank interest across the EU.

Maybe not many people care about this topic. But if anyone does any thoughts would be welcome. It's great that things have got better but sad that not enough people are switching to better rates.

 

[ClubMan]

Maybe it falls under your points #3 and/or #7 above but isn't it likely that the DIRT/withholding tax/reporting issues put some (many?) people off?

 

[Dr Strangelove]

1. Comparison Tools: Cross-border savings products should be included in state comparison sites like CCPC (Ireland's Competition and Consumer Protection Commission).

It’s a nice idea but there are (tens of?) thousands of savings products across the euro area….how would the CPCC reliably keep track and verify?

 

[Dr Strangelove]

2. Comprehensive Comparison Website: Similarly, there's a need for an unbiased, comprehensive EU-wide savings product comparison website, either from the private sector or the European Commission. It does not exist today.

Agree. Costs of this would be far below the benefits.

6. Non-Discrimination Rules: Consideration should be given to implementing residency non-discrimination rules for large banks, allowing EU residents to open deposit products regardless of their country of residence within the EU.

This is tricky to balance with the right of firms to assess their own risk and choose their own business model. You have to trade off financial crime risk against consumer choice benefits here too.

7. Automated tax deductions at source for bank interest across the EU.

I think this would be impossible. You can’t expect all firms to:
1) keep abreast of withholding tax regimes x27 and remit to 27 different tax authorities. It would be an impossible admin burden for a typical bank
2) reliably know tax residency of customers to accurately carry out the above

Burden should remain on the taxpayer to ensure compliance in country of residency.

 

[Lightning]

This is tricky to balance with the right of firms to assess their own risk and choose their own business model. You have to trade off financial crime risk against consumer choice benefits here too.

Thanks for your thoughts.

There is supposed to be a single market in the EU for banking services. There is already a requirement for certain products, such as Basic Current Accounts, for banks to open the account regardless of where the person is based in the EU. I feel this could be expanded to savings accounts. But I appreciate your point about this being non-compliant with some banks business models.

I think this would be impossible. You can’t expect all firms to:
1) keep abreast of withholding tax regimes x27 and remit to 27 different tax authorities. It would be an impossible admin burden for a typical bank
2) reliably know tax residency of customers to accurately carry out the above

Burden should remain on the taxpayer to ensure compliance in country of residency.

Yeah, it would add a lot of admin for banks and maybe not realistic just yet. But automated tax at source is the direction of travel and some banks do offer automated CGT and automated deposit tax in some countries. But perhaps a better first step would be zero withholding tax at source, for EU residents that are not resident in the banks country - at least this would simplify the process and remove steps in countries that do local withholding tax deductions.

 

[Lightning]

It’s a nice idea but there are (tens of?) thousands of savings products across the euro area….how would the CPCC reliably keep track and verify?

EC could maintain a website listing all cross-boarder deposit products and the countries that the product is available in.

CCPC could then take the data from the EC for all deposit products that are available for Ireland residents.

Or alternatively the private sector could step in and do it in a proper comprehensive non-biased way.

 

[Freelance]

A few suggestions:

Grade products into one of two categories, design a common brand for the first category and promote it heavily via a publicity campaign to make consumers aware:

• (A) "simple products" that everybody can avail of with confidence e.g. deposit account, demand or fixed term, DGS guaranteed to 100k, no capital or exchange risk, clearly understood returns, no interest related complications or penalties or variables (e.g. Deposit with declared AER and non of the messy stuff), clearly stated end of term process, clearly stated early redemption process with clearly stated penalties if applicable, no withholding tax. Products should meet/adhere to predetermined guidelines, be branded and publicised accordingly. An EU/Euro wide version of the French "Livret A" comes to mind, perhaps without the state predetermining the interest rate, and allowing Term as well as Demand accounts.
• (B) everything else for those who want more complex products and have the skill, knowledge and time to research and manage them
• And before anybody jumps down my throat I'm not saying to limit products or providers any way; this is just a categorisation so that consumers can be confident that understand the product they are engaging with.

Either harmonise deposit interest operation/exemption (not rates) across the EU (fat chance) or exempt Legislate to exempt Deposit Interest up to a realistic figure (say €25k pa) from the "Chargeable Persons" categorisation, and accordingly allow people to continue declaring Deposit Interest and paying DIRT using Form 12 rather than Form 11. The current limit is too low and forcing large number of people to use the Form 11 process for something as simple as tax on Deposit Interest is very frustrating, costly if you have to enlist an accountant or tax consultant to assist with the returns not to mention it being a complete waste of Revenue's obviously scarce and not altogether competent resources.

Do something to sort out nonsense such as Revenue saying "provide us with Bank Statements for all Deposit Interest translated into English", and Banks at the same time saying "we only offer statements in German"

Someone should shove a rocket up the rear end of State Savings to use their market presence to improve competitiveness and return for consumers. The original intention of State Savings was to allow the common man participate in the National Debt and to benefit accordingly. State Savings has become a fat bloated lazy useless self-serving organisation that has lost sight of its purpose and whittled away the consumer benefits and now just acts a a cheap source of funds for the State by penalising those who don't know any better and who trust the state to look out for them.

Mandate all National Central Banks in the EU/Euro area to look after Consumer Protection with 100% of the gusto and enthusiasm it applies to prudential regulation and 5% of the bureaucracy. Retail bank's customer support, procedures, documentation, systems and websites all need much better supervision/regulation and the Central Banks need to get much better at absorbing and acting on feedback instead of incessantly telling consumers that "it isn't our job" or "we are not mandated to"

SEPA instant will also be a facilitator when our deadbeat pillars finally drag themselves over the 2025 deadlines at the very last possible minute.

 

[camlin90]

To be quite frank ~3pc via Raisin vs ~0pc is unlikely to radically incentivise people with already busy lives when you consider the paperwork and tax considerations of setting up foreign bank accounts and the fact that up to 37pc of the proceeds are taxed anyway.

This is after a decade where all rates were effectively frozen at zero as Super Mario did "whatever it takes" to save the euro - and believe me, it was enough to decimate the real value of your deposits. The interest rate cycle looks to have peaked again and we are staring down a period of even more pitiful rates.

The elephant in the room is that, following the close encounter the financial system had in 2008, explicit public policy via governments and central banks is to discourage prudent saving and continue inflating the debt pyramid. Plenty that could be done but the will isn't there.