BY JOHN ELLIS, FINANCIAL ADVISOR
If you’re one of the many households with savings parked in an easy-access account, the past decade has taken a quiet but heavy toll. Over that time, the average demand-deposit account has lost more than 21% of its purchasing power to inflation. That’s not a line on a graph. It’s money that simply doesn’t go as far when the bills arrive or the weekly shop needs to be done.
Households in Ireland hold around €175 billion in savings. Close to €156 billion of it sits in demand-deposit or current accounts earning an average of just 0.14%. For every euro in a term deposit, eight euro remain in these low-return accounts. Raisin Bank’s Eoghan O’Hara calls it the hidden cost of financial inaction. Even the average term deposit rate of 1.85% is struggling to keep pace with inflation at 3.4%, though those who have moved money across are still earning more than 13 times the return available on standard demand accounts.
The squeeze isn’t confined to your savings. It shows up in places people feel every week. A pack of six large eggs now costs €2.47, up 10% in a year. Fresh cod fillets have risen 16% to €26.79 a kilo. Beef, pork, lamb and roast beef have all moved higher too. Home-heating oil has jumped almost 49%, with a thousand litres of kerosene now around €1,210. Petrol and diesel remain more expensive than a year ago, despite the excise cuts.
Central Bank Governor Gabriel Makhlouf and the ESRI have both warned that higher energy costs early in the year are still working their way through supply chains, with further price pressure expected later in the year. Renewed concerns over oil supplies have added another layer of uncertainty.
Against that backdrop, one area has offered a measure of relief. The average new mortgage rate fell to 3.48% in May, the first time in more than three years it has matched the eurozone average. Daragh Cassidy of Bonkers.ie points out that Ireland is no longer among the more expensive countries for borrowers. The improvement, however, may not last if the European Central Bank raises rates again in the coming months. Anyone coming to the end of a fixed-rate deal or sitting on a variable rate would be sensible to start comparing what’s available now rather than waiting for the renewal letter.
It’s worth looking beyond teaser rates that pull you in and then disappear. If you’re willing to lock money away for set periods, you can secure better returns. Spreading savings across terms that mature at different times also keeps some access without giving up the higher rates now available from several providers paying 3% or more.
If your money has been sitting in the same account for years, take a proper look at whether it’s still working for you. And if you’ve a mortgage coming up for renewal or you’re on a variable rate, now is the time to compare what’s out there rather than just accepting the first renewal letter that lands. Small steps, but they add up when prices keep climbing.
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