The European Central Bank (ECB) has been steadily raising interest rates in an effort to combat inflation. This has led to higher interest rates for borrowers, but Irish banks have been reluctant to pass on these increases to savers.
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| Data from Trading Economics |
As a result, savers in Ireland are currently earning some of the lowest interest rates in the eurozone. The average interest rate on a savings account in Ireland is just 0.05%, while the average interest rate on a mortgage is 3.5%.
There are a number of reasons why Irish banks are reluctant to pass on interest rate increases to savers.
- One reason is that they are still recovering from the financial crisis of 2008. The crisis left Irish banks with a large amount of bad debt, which has made them more cautious about lending money.
- Another reason is that Irish banks are facing increased competition from non-bank lenders, such as credit unions and peer-to-peer lending platforms. These lenders are able to offer higher interest rates to savers because they do not have the same overhead costs as banks.
As a result of the reluctance of Irish banks to pass on interest rate increases, savers in Ireland are being squeezed. They are earning less interest on their savings, while the cost of borrowing is rising. This is likely to have a negative impact on the economy, as it will discourage people from saving and investing.
Comparison with Other Eurozone Countries
The reluctance of Irish banks to pass on interest rate increases to savers is not unique to Ireland. Banks in other eurozone countries have also been slow to do so. However, the situation in Ireland is particularly bad.
According to a recent survey by the European Savings Bank Group, the average interest rate on a savings account in the eurozone is 0.3%. However, the average interest rate on a savings account in Ireland is just 0.05%. This means that savers in Ireland are earning almost two-thirds less interest than savers in other eurozone countries.
The reluctance of Irish banks to pass on interest rate increases to savers is also reflected in the difference between the interest rates available to borrowers and savers. In Ireland, the average interest rate on a mortgage is 3.5%, while the average interest rate on a savings account is just 0.05%. This means that borrowers are paying almost seven times more interest than savers are earning.
The situation in Ireland is in stark contrast to the situation in other eurozone countries. In Germany, for example, the average interest rate on a mortgage is 2.5%, while the average interest rate on a savings account is 0.5%. This means that borrowers in Germany are paying just over four times more interest than savers are earning.
The difference between the interest rates available to borrowers and savers in Ireland is likely to have a negative impact on the economy. It will discourage people from saving and investing, and it will make it more difficult for people to buy a home.
Conclusion
The reluctance of Irish banks to pass on interest rate increases to savers is a serious problem. It is unfair to savers, and it is likely to have a negative impact on the economy. The government needs to take action to address this problem, and it should do so by increasing competition in the banking sector and by providing incentives for banks to pass on interest rate increases to savers.