Irish banks are falling over themselves to get hold of consumer cash with unsustainable interest rates for savers - one of the few plus sides to the bailout
Irish banks are offering great rates on deposite, but for how long?
As Portuguese householders stare down the barrel of an IMF/EU bailout and the years of austerity that go with that, there should cherish one small comfort – interest rates on their savings accounts may never be better.
In Ireland, bailed out banks are so desperate to get hold of consumer cash to counter the flight of capital and build up reserves, they are offering super-attractive savings rates of up to 6% - interest rates that even its own executives say are unsustainable.
Bank of Ireland chief executive Richie Boucher at a recent briefing with journalists described this is one of the big issues facing the banks.
His problem is that the so-called "net interest margin" is not in their favour. They are paying out more than they are getting in on a stagnant loan book which includes loss-making tracker mortgages.
"Deposit pricing is red hot in the Irish market," said Boucher. "It is going to be impossible to maintain deposit pricing," he added.
Bank of Ireland is offering ordinary savings account holders rates of 3.25% and an eye-watering rate of 6% in a "double your interest rate" deal for those who leave their money on deposit for two years.
Irish savings rates almost double UK rates
This compares with best buys for ordinary savers in the UK which are listed in today's Guardian as Nationwide Building Society with a 3.05% interest rate, ING Direct at 3% and Tesco at 2.9%.
No wonder Irish savings are at record levels – around €93bn.
The question is, if the rates are unsustainable, won't they disappear? Not this side of Christmas, says Dolmen Securities banking analyst Oliver Gilvarry.
The competition for savers' money is so stiff that there is little chance banks will be able to drop rates in the next 12 months, he says.
"The banks are relying on funding from the ECB, they have no choice but to offer these rates. Even the loss of Anglo and Irish Nationwide from the market didn't normalise the market. I don't think there will be any normalisation in 2011.
"There is big competition – everyone is chasing deposits. Even in the UK, while not as good, there are pretty attractive rates," he points out.
All the bail out banks are at it. Bank of Ireland is competing with the likes of Educational Building Society, a bank which is about to be mothballed and is offering rates of 4% while Allied Irish Banks, the second most toxic bank after Anglo Irish Bank, is offering 3.75% on ordinary savings accounts.
As Gilvarry points out "normal" banks – those not on life support have to stick to more realistic pricing.
National Irish Bank – owned by Danske Bank – is offering savers a comparatively paltry 1% while RaboDirect – which made a huge play for Irish desposits last year – offers just 2.25%.
Ulster Bank, interestingly, is up there with the EBS at 4%. It is not on Irish state-support, but its parent, the Royal Bank of Scotland is on UK state support.
So Portugal, you have our sympathies. But the bailout may have a perverse upside for the consumer. Cherish it while you can. As Gilvarry says: "You don't have a sustainable banking system until deposit rates like this are solved."
Irish banks are offering great rates on deposite, but for how long?
As Portuguese householders stare down the barrel of an IMF/EU bailout and the years of austerity that go with that, there should cherish one small comfort – interest rates on their savings accounts may never be better.
In Ireland, bailed out banks are so desperate to get hold of consumer cash to counter the flight of capital and build up reserves, they are offering super-attractive savings rates of up to 6% - interest rates that even its own executives say are unsustainable.
Bank of Ireland chief executive Richie Boucher at a recent briefing with journalists described this is one of the big issues facing the banks.
His problem is that the so-called "net interest margin" is not in their favour. They are paying out more than they are getting in on a stagnant loan book which includes loss-making tracker mortgages.
"Deposit pricing is red hot in the Irish market," said Boucher. "It is going to be impossible to maintain deposit pricing," he added.
Bank of Ireland is offering ordinary savings account holders rates of 3.25% and an eye-watering rate of 6% in a "double your interest rate" deal for those who leave their money on deposit for two years.
Irish savings rates almost double UK rates
This compares with best buys for ordinary savers in the UK which are listed in today's Guardian as Nationwide Building Society with a 3.05% interest rate, ING Direct at 3% and Tesco at 2.9%.
No wonder Irish savings are at record levels – around €93bn.
The question is, if the rates are unsustainable, won't they disappear? Not this side of Christmas, says Dolmen Securities banking analyst Oliver Gilvarry.
The competition for savers' money is so stiff that there is little chance banks will be able to drop rates in the next 12 months, he says.
"The banks are relying on funding from the ECB, they have no choice but to offer these rates. Even the loss of Anglo and Irish Nationwide from the market didn't normalise the market. I don't think there will be any normalisation in 2011.
"There is big competition – everyone is chasing deposits. Even in the UK, while not as good, there are pretty attractive rates," he points out.
All the bail out banks are at it. Bank of Ireland is competing with the likes of Educational Building Society, a bank which is about to be mothballed and is offering rates of 4% while Allied Irish Banks, the second most toxic bank after Anglo Irish Bank, is offering 3.75% on ordinary savings accounts.
As Gilvarry points out "normal" banks – those not on life support have to stick to more realistic pricing.
National Irish Bank – owned by Danske Bank – is offering savers a comparatively paltry 1% while RaboDirect – which made a huge play for Irish desposits last year – offers just 2.25%.
Ulster Bank, interestingly, is up there with the EBS at 4%. It is not on Irish state-support, but its parent, the Royal Bank of Scotland is on UK state support.
So Portugal, you have our sympathies. But the bailout may have a perverse upside for the consumer. Cherish it while you can. As Gilvarry says: "You don't have a sustainable banking system until deposit rates like this are solved."
