calls for ECB rate hikes to be passed on to savers using on-post schemes

After the five interest rate hikes by the European Central Bank (ECB), higher interest rates for government savings products were demanded.

Consumer advocates pointed out that the interest rates for the tax-free state savings products have been continuously reduced in recent years – and the interest rates on them have not yet risen despite the five interest rate hikes by the ECB.

In the past, banks have admitted lobbying the state to lower interest rates on state savings – sold through post offices – claiming they are at a competitive disadvantage in the fight for savers’ money.

There is now around €150 billion in savings at banks and credit unions, with banks able to invest much of this money with the ECB. Last Thursday, the ECB raised its deposit rate to 2.5 percent.

The National Treasury Management Agency (NTMA) has not hiked interest rates on its savings products since the ECB’s deposit rate rose to 2.5 percent from minus 0.5 percent in the summer.

Consumers Association of Ireland Chair Michael Kilcoyne said the NTMA’s failure to raise interest rates on the government’s savings products was “an abuse” by people seeking security to put money into the funds.

“Savers give money to the state and get practically nothing in return.

“The NTMA should raise their rates,” Mr Kilcoyne said.

“This is an abuse by people who seek the security of government savings products by not paying them a realistic rate of return.” AIB, Permanent TSB and Bank of Ireland have all increased their deposit rates in recent months, albeit by smaller than savers expect.

But the NTMA has yet to come up with what it pays for its savings certificates, savings bonds and National Solidarity Bonds.

The NTMA’s 10-year Solidarity Bond pays 0.96 percent. Savings bonds – a three-year product – pay 0.33 percent, while the four-year solidarity letter pays 0.5 percent.

Always very popular as there is no tax on interest on deposits (dirt), around €24.8 billion is invested by households in government savings products.

The dirt rate for savings at banks and credit unions is 33 percent.

Daragh Cassidy of price comparison site Bonkers.ie said savers are effectively subsidizing mortgage holders at the moment. He said that Irish mortgage rates had become more competitive compared to our European neighbors of late as the big banks had been reluctant to pass on any ECB rate hikes.

In both November and December, Ireland had the third lowest mortgage rates in the eurozone.

“While this is welcome, it is largely at the expense of savers,” he said.

He said the ECB is almost guaranteed to raise its deposit rate to 3 percent – and its policy rate to 3.5 percent – next month.

“These increases will ultimately all end up being largely passed on to mortgage customers, so it’s only fair that savers should benefit as well.”

An NTMA spokesman said: “We are reviewing interest rates applicable to State Savings products.”