The banks: putting profit before people


The Irish banking sector are in the cross-hairs again. Mortgage holders, particularly those on tracker mortgages have born the full weight of recent rate hikes while deposit holders have seen little of the ‘extra income’. Yet, the banks are proposing to lavish share options on their executives because of huge profits.

A recent survey conducted by renowned rating agency S&P has brought to light the striking difference between Irish banks and their European counterparts when it comes to rewarding depositors in line with higher interest rates. The report shows that, while UK banks have passed on 43% of the rate rises to savers, Irish banks have only offered a meagre 7% in comparison. The euro area average stands at 20%.

Italy passed on only 11% of the recent rate hikes to savers, prompting the Italian Government to impose a once off 40% windfall tax on banks. The surprise move was agreed by Prime Minister Giorgia Meloni’s ministers at a cabinet meeting earlier this month, vowing to invest the funds raised into helping households and businesses struggling with the cost of borrowing.

I can’t see our Government bringing in a windfall tax any time soon even in spite of John McGuinness, Chairman of the Oireachtas Finance Committee, calling on the Government to “to take a strong hand” with the banks and insist they increase their interest rate on deposits. Minister for Higher Education Simon Harris recently said it was “utterly offensive” for Irish banks to be “complete and utter laggards” in passing on interest rate increases to savers.

“The extent of the profits now being made by banks reporting €1 billion in the first six months of a year is huge,” he told RTÉ Radio One. “The fact [is] that the interest rates are now increasing and depositors – those that have money on deposit – are largely being ignored. I think it’s time for the Government to take a strong hand in relation to this.”

Minister of Finance Michael McGrath said the windfall tax was not the proper way to go but threatened the banks with a review of the bank levy; he planned to review the scope and scale of the State’s bank levy in the Budget if the banks continued to fail to reward their deposit holders.

The banks are in the driving seat, grappling with an influx of deposits and a dearth of loans, aggravated by the departure of  KBC and Ulster Bank from the market. This lack of competition is certainly not helping, with only three major players remaining in the Irish banking sector offering deposit interest rates, meaning they can dictate terms leaving depositors with limited options for better returns.

The deposit profile of these banks is far from balanced as a significant amount of the funds are held in current accounts which  attract little to no interest, while demand deposit accounts yield negligible returns. This sharply contrasts with the situation ten years ago when a majority of deposits were in some form of term deposits.

Compounding this issue, the European Central Bank used to charge negative interest on current accounts and demand deposits between 2014 and 2022. However, after a shift in rates, Irish banks are now able to deposit this cash with the ECB, reaping substantial profits. As a result, “current accounts have become the new focal point for profitability”, encouraging banks to prioritise these over higher-yielding term deposits.

Why wait for the Government or the Central Bank to intervene? The responsibility to get better value for your money remains with you. You need to consider options.

One such option is, an online deposit broker, which offers considerably higher rates than Irish banks. The platform provides an opportunity to access European banks with attractive offers, promoting a more diversified approach to savings and they are all subject to their respective national Deposit Guarantee Schemes.  The deposits you contract through Raisin Bank are therefore secured up to €100,000 per person and bank. At time of writing, the best five-year fixed-term rate offered via Raisin Bank for someone with up to €100,000 to put away is 3.50% from Younited Credit in France.

Furthermore, Irish insurers such as  Zurich and Standard life are offering attractive deposit returns for demand and longer-term investment policies with established institutions.

The current climate in the Irish banking sector paints a disheartening picture of profit before customer. The disparity between the impact of rate hikes on mortgage holders and depositors underscores the urgent need for a more balanced and ethical approach. As the banks thrive we all need  to explore alternative options and demand greater transparency and fairness from financial institutions.

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