New coronavirus economy meets pre-existing rate stagnation
- 82% of Irish survey respondents find the interest rate situation unfair
- Nearly two thirds think saving makes no sense given the low interest rates
- Savers are disillusioned, with four out of five demanding action from the government
- Coronavirus is wreaking havoc on markets – but it’s raising some interest rates
The coronavirus pandemic has turned global markets upside down. At least 88 central banks around the world have cut interest rates since the outbreak of COVID-19 in an attempt to contain the economic damage.* The European Central Bank meanwhile has defended a negative deposit rate on EU banks since 2014. This measure has imposed immense costs on Irish banks – 84 million EUR in 2018**, with similar numbers expected from 2019. To their frustration, Irish savers are already familiar with the low interest rate crisis: the average rate in Ireland for term deposits up to 1-year has been the lowest in the European Union, currently at 0.02% (as indicated in the latest available ECB data), and the lowest average rate in the European Union. The Irish have nonetheless continued to save, with household savings near 110 billion EUR.
Underlying the economic turmoil caused by the current pandemic is a set of longer-term conditions characterised by interest rate stagnation. The deposits marketplace by Raisin Bank (https://www.Raisin.ie) conducted a representative survey to understand how people in Ireland are experiencing low and negative interest rates.
In Ireland, 71% are worried about retirement
The phase of zero and negative interest rates has penetrated popular consciousness in multiple ways. For nearly two thirds of the respondents (62%), saving no longer makes sense given the low rates. Over half (56%) are directly affected by low interest rates themselves or have seen families and friends affected, while another almost one in five (17%) does not have enough money to save at all. Nearly three quarters of the Irish surveyed (71%) fear that under current conditions they will not be able to save enough for retirement.
“It’s not fair”: Four out of five want to see central bank or government intervention
Four out of five study participants (82%) perceive low and negative interest rates as unfair for savers. The current interest rate situation reduces trust in banks for two thirds of respondents (68%). At the same time nearly that many (62%) have understanding for banks that pass on penalty interest to their customers. Just a quarter do not (25%). Four fifths of the Irish (82%) would like the central bank to take measures, while nearly as many (78%) even want the government to intervene actively against low and negative interest rates.
Interest rates may be on the rise – but will they overcome popular despair?
Two thirds of study participants (66%) are convinced that interest rates have a significant impact. But 24% express disillusionment, saying it “makes no difference” anyway, and nearly half (45%) expect no improvement in rates for the foreseeable future. Only one in five (19%) say they turn to their bank or a financial advisor to optimise the return on their savings.
A potential bright spot amid the economic chaos could be an upward tick in interest rates at smaller and medium-sized banks. Raisin Ireland Country Head Alejandro McCormack explained: “In March alone, we’ve seen 86 interest rate increases on Raisin platforms across Europe, with Raisin Ireland also welcoming its seventh partner bank, Banco Português de Gestão. This trend counters the worry of the 62% who no longer see the point of saving and suggests an improvement in Irish consumers’ options to save effectively. Further cooperation between fintechs and banks can create new options for depositors, bringing relief from not just the current pandemic-induced downturn but also the longer-term issue of low interest rates.”
A trailblazer for open banking and the leading pan-European one-stop shop for online savings and investments, Berlin-based fintech Raisin was founded in 2012 by Dr. Tamaz Georgadze (CEO), Dr. Frank Freund (CFO) and Michael Stephan (COO). Raisin’s platforms — under the brand WeltSparen in the German-speaking world — are breaking down barriers to better savings for European consumers and SMEs: Raisin’s marketplace offers simple access at no charge to attractive and guaranteed deposit products from all over Europe, as well as globally diversified, cost-effective ETF portfolios and pension products (currently available in Germany). With one online registration, customers can choose from all available investments and subsequently manage their accounts. Since launch in 2013, Raisin has placed 21.5 billion EUR for more than 245,000 customers in 28+ European countries and 90 partner banks. Raisin was named to Europe’s top 5 fintechs by the renowned FinTech50 awards and is backed by prestigious European and American investors such as btov Ventures, Goldman Sachs, PayPal Ventures, Thrive Capital, Index Ventures, Orange Digital Ventures and Ribbit Capital. Raisin UK in Manchester, banking-as-a-service provider Raisin Bank in Frankfurt, pensions specialist fairr, and Raisin Technologies (formerly Choice Financial Solutions) all belong to Raisin.