What’s next for interest rates in Ireland?

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After years of historically low interest rates, interest rates in Ireland are currently rising, in line with interest rates across the Eurozone. The European Central Bank (ECB) has raised its benchmark interest rates by 2.00 percentage points since July 2022, in an effort to combat high inflation.

Read on to discover if and when interest rates are likely to increase or decrease again and what this could mean for savings accounts.

Last updated: November 2023

What is the current ECB rate?

As of 20 September 2023 (that most recent annoucement), the ECB’s main refinancing rate is 4.50%.

The marginal lending rate is 4.75%, and the deposit facility rate is 4.00%. These rates are used as a reference point by Irish banks when setting their own interest rates on loans and deposits.

What is the current rate of inflation in Ireland?

As of October 2023 (the latest period available) inflation in Ireland is at 5.00%, compared to 4.90% in the previous month and 9.00% in 2022.

What's new? October 2023

With the sharp rise in interest rates in Ireland over the last 12 months, Irish savings rates have also started to rise, but at a much slower pace than mortgage rates. Irish banks are currently the ‘worst in Europe’ at passing on rate rises to savers, according to S&P Global ratings and as reported by The Financial Times. The European Central Bank’s main lending rate now sits at 4.50%, the highest it has been since 2001 following ten consecutive rate hikes, and yet Irish banks have, perhaps unsurprisingly, been quick to pass this rise on to mortgage borrowers rather than savers.

Although year-to-date inflation is lower than it was at the beginning of 2023, at 5%, it’s still far from the long-term average of 2.01%, and savers are struggling to keep up, with Irish demand deposit rates barely topping 0.25% AER.

Last month, the Minister for Finance, Michael McGrath, sent a strong signal to lenders that he expects them to start putting up interest rates for savers. He said that despite the steady increase in ECB rates, “the passthrough of that to savers and depositors has been low”. He added: “I would expect over the weeks ahead that we will see increases in the rates of interests being paid on savings and deposits by banks to customers in Ireland, and I think that is right and appropriate.”

McGrath said that €140 billion of €150 billion in Irish savers’ funds is in overnight accounts earning close to zero percent in interest, and encouraged savers to move them to higher yielding savings accounts with a notice or fixed maturity period.

What’s happened to interest rates over the last 12 months?

Interest rates in Ireland have risen sharply over the last 12 months. The European Central Bank (ECB) has raised its benchmark interest rates by 2.00 percentage points since July 2022, in an effort to combat high inflation.

Irish mortgage rates have already started to rise in response to the ECB’s rate hikes. According to the Central Bank of Ireland, the average interest rate for a new mortgage in Ireland was 3.84% in May 2023, up from 3.63% in April. This is the highest level that Irish mortgage rates have reached since 2013.

Will interest rates continue to rise in Ireland?

The European Central Bank (ECB) has signaled that it will continue to raise interest rates in an effort to combat high inflation.

The ECB’s Governing Council has said that it will “raise interest rates significantly higher at a sustained pace” and that it will keep interest rates high “until it sees a sustained decline in inflation in line with its 2% target.” This means that Irish borrowers and savers should be prepared for further increases in interest rates over the next year or two.

What does this mean for Irish savers?

While rising interest rates may be bad news for borrowers, savers typically stand to gain. Higher interest rates on savings accounts will help to offset the impact of inflation on your savings, and savers in Ireland can expect to see higher interest rates on their savings accounts in the coming months. However, it is important to note that savings rates are still relatively low compared to historical levels.

Some Irish banks have already started to raise interest rates on their savings accounts, albeit slowly. Other Irish banks are expected to follow suit in the coming weeks and months. However, it is important to compare different savings accounts before you switch, as interest rates can vary depending on the lender and the type of savings account.

Here are some tips for savers in Ireland in the current interest rate environment:

  • Shop around for the best savings interest rates. You can use a comparison website to compare the interest rates offered by different Irish banks.
  • Consider switching to a fixed-term savings account. Fixed-term savings accounts typically offer higher interest rates than easy-access savings accounts, but you will not be able to access your money during the fixed term.
  • Check that your savings account is covered by the Deposit Guarantee Scheme. The Deposit Guarantee Scheme protects your savings up to €100,000 in the event that your bank fails.

What kind of savings account is best for Irish savers?

The best savings account for you will depend on various factors, such as if you have a lump sum to invest and whether you’ll need access to your money. If you can afford to lock your money away for a set period, you might want to opt for fixed interest rate products. They typically offer the most competitive rates of all account types and are ideal for long term savings goals.

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Public Expenditure Minister, Paschal Donohoe, has said: “It’s up to people who have money they are going to put on [a] deposit to get the rate of return that they think is best for them. Looking to put money in other parts of Europe, and other banks elsewhere in Europe, is not an unpatriotic act. It’s the way the single market functions.”

Regardless of what happens to the interest rate in Ireland, there’s never a bad time to save. Whether it’s to take advantage of future spikes in interest rates or to protect yourself and your family from an unseen financial fallout, opening a savings account will give you more for your money.

To find the best savings account for you and compare interest rates on savings accounts, register for a Raisin account and log in to apply.