There have been a lot of changes to banking in Ireland in the last few months, and it might be time to reconsider how you're saving your money.
Ulster Bank have given notice to quit Ireland, a their parent Nat West cannot see the justification for their shareholders in maintaining a business that is slowly stagnating. This isn't all their fault – onerous liquidity demands from the Central Bank, recessions, pandemics and other compliance issues did not help.
KBC Bank owned by KBC Group N.V., the second-largest bancassurer in Belgium, has signed a Memorandum of Understanding with Bank of Ireland, essentially selling off their assets (and liabilities) to this banking group.
Both will take time. Ulster Bank could take up to six years to unravel what took 185 years to produce. KBC Bank will also take time to transfer their assets.
In the meantime, these two banks have €25 billion in deposits alone between them and some nervous customers. They're mostly attracting minimal interest rates, and the demand rate is 0.01% – which after DIRT (Deposit Interest Retention Tax) amounts to a whopping 0.0067%!
So what do those customers do now? Are they safe? What options do they have? John Lowe of MoneyDoctors.ie gives the answers…
1. Don't panic – the government’s Deposit Protection Scheme guarantees up to €100,000 per person per institution, €200,000 per joint account. So if you are in the happy position of exceeding these amounts, transfer to another deposit taker – even credit unions and post offices are covered under the government DPS guarantee.
2. Review your financial commitments
a. Do you have high interest short term debt? This kills your income and cash flow – income is your number one asset so no point in maintaining this kind of debt when you are receiving buttons in interest on your deposits.
b. Is it worth paying off your mortgage? Only where you have a tracker rate do you stand a better chance of earning more than the mortgage interest rate. Some mortgage interest rates are unjustifiably high… up to 4%.
c. Have you checked your pension fund? Most people cannot afford to invest their age threshold entitlement (e.g. if you are between 40 and 49 years of age, you can invest up to 25% of your net annual relevant earnings to maximise the tax relief available – if your income is €60,000 annually, you can invest €15,000 into your pension fund and the government will rebate you €6,000!) so well worth the exercise if your pension is underfunded.
d. Should you start that collectible investment? If for instance you are into rock’n roll, now maybe the time to buy one or two items: a signed John Lennon photo could be as valuable as a Louis Le Brocquy painting. Wine investment? At least if it doesn’t work out, you can always drink it – collect your preferences.
3. National Treasury Management Agency’s State Savings suite of investments
a. The best of them is their 10 years National Solidarity Bond – a 10 year investment that yields 10% tax free on maturity, equivalent to 0.96% net per annum or a gross annual rate of 1.43% - this is the best deposit rate in Ireland currently. Maximum investment is €120,000 per person.
b. Prize Bonds – there is over €4 billion invested with 0.35% going back in prizes each year – that’s €14 million with four top prizes of €250,000 each year. Maximum holding is €250,000 per person. You cannot withdraw for the first three months and then you must give seven days’ notice of withdrawal BUT you are in the draw from day one. Safe.
4. Rainy Day Fund
a. You should have at least three to six months' net annual income in a completely accessible account for those emergencies (the clutch goes), sudden loss of income (placed on a three-day week) or that investment opportunity (back to that Le Brocquy).
b. Best demand interest rate is 0.01% so even leaving this fund in your current account will not be the end of the world in terms of lost interest!
5. Switching current accounts
a. Yes like everything you should shop around. People are by and large extremely loyal to suppliers and providers – how many people in their 60s have the same bank account opened when they first attended third level college?
b. Best comparison site is the Competition and Consumer Protection Commission (www.ccpc.ie) where all the Irish current accounts (includes N26 but not Revolut) are compared. Read more here.
There you have it. If you require further information, email me. Keep safe.
The views expressed here are those of the author and do not represent or reflect the views of RTÉ.