Reaction to ECB rate cut
Following the ECB's latest rate cut, the spotlight is now on the increasing pressure for Irish banks and lenders to reduce mortgage rates. However, experts at Raisin Bank warn that time is running out for Irish savers.
Benedikt Voller, Chief Revenue Officer at Raisin Bank, commented: “What goes up must come down, but Irish domestic savings rates have barely risen. Consumers are being hit on both sides, with mortgages still the highest in Europe and savings returns trailing well below the European average."
He added: “In the past two years, EU savers have generally earned more on short-term fixed deposits than long-term ones, as markets expected rate hikes for shorter terms and potential cuts for longer maturities. However, with further ECB rate cuts expected this year, short-term deposit rates are falling faster. As inflation targets are met and key rates continue to decline, savers should prepare for a prolonged low-interest environment.”
Voller also pointed out that loyalty to domestic banks isn’t paying off for Irish savers: “While we’ve seen a shift toward higher-rate savings accounts in Ireland, these still offer, on average, significantly less than what’s available from other EU banks. Eventually, these rates will drop too. Two CEOs of Ireland’s largest banks have already expressed surprise that more Irish consumers aren’t moving their savings to better-paying deposits, and primarily domestic banks have little to motivate them to increase rates anywhere near what has been seen in the rest of Europe.
He concluded by noting that the yield curve will shift, with interest rates for short-term deposits decreasing more sharply than for longer maturities. “For those Irish savers that have moved most of their savings into demand deposits, fixed-terms with 12 months or even multi-year maturity will protect against highly dynamic, falling demand deposit rates. And if they want to make the most of their returns in this coming period? The most competitive rates will be found on fixed-term deposits with two to five years terms, which will far outperform demand deposit accounts.”