Interest Rate v Deposit Rate

Peavoy Financial Planning The Disconnection

Will Irish Banks pass on some interest rate increases to depositors?

An issue that has raised concerns in recent weeks among depositors in Laois and further afield, is the failure of Irish banks to pass on interest rate increases to their depositors. While depositors expect to benefit from rising interest rates, a sizeable gap between rates set by the European Central Bank and the rates offered by Irish Banks has emerged. In this article I examine some potential reasons behind this disparity and the implications it holds for depositors.

When the European Central Bank raise interest rates, their aim is to curb inflation, promote savings and stabilise the economy. Banks in theory are expected to reflect these rate increases, in the interest rates they offer on savings accounts and deposits. However recent trends indicate a lack of alignment between the European Central Bank  rate and the respective deposit rates on offer form Irish Banks.

Factors contributing to the Gap

Lack of Competition – The withdrawal of Ulster Bank and KBC Bank from the Irish Market removed some competition from this area. Limited competition in the banking sector means that there is less pressure on banks to attract savers. Banks as a result may feel less compelled to adjust their rates.

Profit Margins – Another reasons cited for the failure to pass on interest rate increases, is the concern over banks’ profit margins. While banks benefit from charging borrowers higher interest rates in response to central bank rate hikes, they are often reluctant to increase interest rates offered to depositors, due to the impact it may have on their bottom line.

Economic Uncertainty – Banks may also be influenced by prevailing economic uncertainties. If banks anticipate a slowdown or downturn in the economy, they may be cautious about increasing deposit rates, fearing the need to reverse those increases in the near future.

Implications for Depositors

Eroded Earnings – Deposit holders and in particular those that rely on interest income, experience a diminished return on their savings when banks do not reflect central bank rate hikes. This can affect retirees and individuals saving for future goals.

Diminished Incentive to Save – When the return on savings do not keep pace with inflation or other investment opportunities, individuals are discouraged from saving. This undermines the fundamental purpose of interest rate hikes, in fostering a culture of saving and reducing spending.

Loss of Confidence – The lack of transparency and the perceived unfairness of not passing on interest rate increases can erode depositor confidence in banks and the financial system as a whole.

The call for Transparency

The failure of Irish Banks to pass on interest rate increases to their depositors raises concerns about transparency, fairness and trust. While banks face various challenges and considerations when adjusting deposit rates, finding a balance between customer expectations and profitability is crucial. I believe that open dialogue between banks, customers and regulators are essential to ensure a fair and transparent deposit rate environment that benefits all stakeholders.

If you wish to explore this topic further, please do make contact with me by phone on 087-2902206 or alternatively by e-mail on

David Peavoy BA, QFA, LIAP is a Director of Peavoy Financial Planning Limited whose practice is based in Office 5b, Portlaoise Enterprise Centre, Clonminam Business Park, Portlaoise, Co Laois.

Peavoy Financial Planning Limited is regulated by the Central Bank of Ireland

Disclaimer: All data and information provided within this blog is for information purposes only. It should not be taken as specific advice for your situation. Peavoy Financial Planning Limited makes no representations as to the accuracy. completeness, or suitability of any information and will not be liable for any errors, omissions or delays in this information or any losses, injuries or damages arising from its use

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