Why are the banks not paying higher interest to depositors?

realitykeeper · 02-02-2023 8:30pm #1

I did a quick check to see what interest Irish banks were paying on savings accounts and the highest I could find was 0.75%. This is disappointing given that the ECB has rates at 2% and is about to up them to 2.5%

Also, given that inflation has been 8.2% for the year to December 2022, we are effectively losing purchasing power to the tune of 7.45% per annum by leaving our money in an account that pays 0.75%

If that wasn`t bad enough, what if any are the viable alternatives? If we invest in the stock market, we take on risk and with rising interest rates and inflation already high, the traded companies are facing challenges they didn`t have to contend with when markets were rising and monetary policy was accomodative.

Big investors have the bonds markets which traditionally were safe in times of uncertainty but again, with inflation, and with the bond yields inflecting, things seem less certain than before.

Investing in housing would be fine if you don`t mind paying a high price while assuming resposibility for the 200 billion the government borrowed sinse 2008 to re-inflate house prices.

I think if you already own your own home, investing in anything that will make you food/energy secure like a vegetable plot and solar panels are a good idea. I am also thinking about emerging markets and precious metals but I am not sure. Any opinions?

The J Stands for Jay · 02-02-2023 8:37pm

The bank's don't need to pay higher interest, so they don't. Why would they pay more to get something they have plenty of?

Overheal · 02-02-2023 8:58pm

https://www.boards.ie/discussion/2058282630/why-are-the-banks-not-paying-higher-interest-to-depositors

The bank pools everyone's money together and takes an ittty witty bitty percentage of it - and spends it on lobbying the government. And then scales it as its successes in lobbying scale.

If everyone at the bottom of the money engine have savings, the economy starts to behave in ways that they cannot predict - the great resignation, for example, too much mobility and savings to find better jobs and demand better pay without being indebted to a bank or hopelessly dependent on the next paycheck in the employment agreement.

Banks only exist to service consumers insofar as it services the ultimate owners of the bank. Rich getting richer. Serving to make customers wealthier? 'We'd have to get a major cut of it.'

CIARAN_BOYLE · 02-02-2023 9:18pm

Bank are holding huge amounts of savings from deposits (people need large savings to buy houses etc).

Read a report recently saying that there are 500K people with the idea that they are saving for a deposit at the moment.

The banks are holding more cash than they need to because so many people are saving money that they don't need to incentivise savings.

Brussels Sprout · 02-02-2023 9:26pm

The banks appear not have passed on the full scale of the ECB hikes in the past year to their mortgage holders (fixed & variable rates).

In order to pay for that largesse they are screwing depositors.

I can only assume that their logic is that savers have nowhere else to go (for the time being) whereas if they hiked up mortgages more they would be worried about more people being unable/unwilling to pay them.

Geuze · 02-02-2023 9:44pm

There are plenty of deposits in the banks.

Credit unions are capping or refusing deposits.

UB and KBC are leaving, so a flood of deposits is flowing into the three remaining banks.

That leaves them with no need to compete on price for deposits.

realitykeeper · 02-02-2023 10:33pm

A lot of people have a lot of savings (as they save toward a deposit) but they are swimming against the tide. Lets say you have 30,000 euro saved toward a deposit and you got 0.75% interest pver the past year, that gives you 30,225 euro.

Inflation last year was 8.2%. So the purchasing power of your 30225 euro is now worth only 27746.55 euro when compared to what you could have bought a year ago.

keeponhurling · 03-02-2023 2:58pm

The banks have investments and portfolios with expected returns.

If the ECB raises rates today by 1%, this does not necessarily mean that banks' expected returns increase by 1% instantly overnight - there's not a direct link. (but it does mean, generally, that higher yielding investments are becoming available).

But there is an indirect link, so indeed the question is a good one. Surely you'd expect interest rates to have gone up by more than they have. I assume it's a supply and demand thing that several posters above mention.

Calahonda52 · 03-02-2023 3:07pm

One of the real concerns with having cash in a bank at the moment is that one option the Shinners have explored is sequestering all deposits over 50k and replacing them with a Government IOU, paying a near zero coupon, to allegedly use the money to address the housing crisis.

The IOUs will have a maturity profile up to 30 years, with the average close to 20

howiya · 03-02-2023 3:09pm

Yep supply and demand. If banks needed your money they'd be trying to attract it with higher interest rates.

What interests me though is the comments made by the governor of the central bank in the oireachtas last week. Was concerned banks weren't passing on interest rate rises in the context of mortgage market because it meant monetary policy wasn't being passed through. Does the same not apply to savings and taking money out of the economy? Would be interesting to hear the CBIs thoughts.

howiya · 03-02-2023 3:14pm

https://www.boards.ie/discussion/comment/120196582#Comment_120196582

Source?

03-02-2023 3:34pm

https://www.boards.ie/discussion/comment/120194187#Comment_120194187

That's assuming that house prices will increase at inflation rates, if that money is ringfenced for a property purchase and house prices stagnate or drop which a lot of boardies are predicating on other threads you would find your 30 grand has a lot more purchasing power. If that money was to be used for day to day expenses then sure its purchasing power will be less in a years time.

Its not in the banks interest to help you create a bigger deposit, the more you borrow from them to purchase a house the bigger the return for them. Your satisfaction is secondary to that of the banks shareholders and executives.

downburst · 03-02-2023 3:55pm

https://www.boards.ie/discussion/comment/120194187#Comment_120194187

Ah, you ignoring the 33% DIRT tax taken at source? you make 148.50 euro from 30k at 0.75% if you can get it. Not worth it. My take is max pension contribution, keep the house up to date and in good order, pay of mortgage more quickly, purchase Zurich or IrishLife funds, buy shares or Index funds, emergency saving of min 6 months, 5% in Gold, which hasn't deflated like money. But you will never make money on cash deposits ever, it's always inflated away.

keeponhurling · 03-02-2023 4:22pm

https://www.boards.ie/discussion/comment/120196582#Comment_120196582

Is that a real thing?

Has that ever happened anywhere ?

beachhead · 03-02-2023 5:21pm

https://www.boards.ie/discussion/comment/120196972#Comment_120196972

The EU floated a similar idea not too long ago(i.e. we sequester your bank accounts,the state wins,you the plebs lose.we take your savings to compensate the bankers in the next crash).No proof of it happening before but I would look to Sth America for a precedent,perhaps in the last century

20Wheel · 04-02-2023 2:10am

Its just money. ones and zeros. its made up.

Why are the banks not paying higher interest to depositors?

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