Should deposit rates match interest rates?

Feets

Hi all. If interest rates go up, do the bank deposit rates go up at the same time?

If not why not or is it a new thing for them to not match...

SuperBowserWorld

https://www.boards.ie/discussion/2058287576/should-deposit-rates-match-interest-rates

People are saving regardless, so they don't need to do anything to get money for free. It would take some competition to start deposit rate hikes or some government savings initiative.

No, the banks have plenty of deposits so they don't need to attract more by increasing interest rates on savings. If people start eating into their savings and deposits drop they might offer more competitive rates to get more money into the banks. The interest rates on loans are generally linked to the rates at which the bank can borrow from the ECB even though they will use a combination of ECB and deposits to supply the loan.

Ubbquittious

Banks are able to magic plenty of money into existence by fractional reserve lending so they don't need as much deposits as one might think.

JTMan

https://www.boards.ie/discussion/2058287576/should-deposit-rates-match-interest-rates

Deposit rates should go up in tandem with ECB rate increases. In Ireland, this is not happening. Banks are profiting off increasing mortgage rates but not increasing deposit rates. Ireland has the second worse deposit rates in the EU.

The CBI should be putting pressure on banks to increase deposit rates like the UK regulator is doing.

The solution for consumers is to switch deposits to Bunq or Trade Republic or Go Light-year (20k max) or Wise.com or Raisin.

RCSATELLITES

Like every other company in Ireland, banks can do what they want. Why would they give us more money, if no one forces them to. Two banks have already left the country, so there is absolutely no competition. They already charge 100% more fees for transactions and so on, than the majority of other countries banks.

Insurance companies, energy companies, banks, supermarkets, retail outlets, Vulture funds and so on. No regulation.

And then after all of that the Irish government have the cheek to charge D.I.R.T tax on those lousy rates.

walterking

https://www.boards.ie/discussion/comment/120340303#Comment_120340303

No competition?

Bunq, Revolut, Raisin, N26, iCard to name just a few.

On lending Avant, Finance Ireland and Dillosk have moved in.

Banks are swimming with deposits and have not increased mortgage rates by the same level as ecb - effectively mortgages are being subsidized by deposits

betonit

Surely state savings products should have risen substantially

Jim2007

https://www.boards.ie/discussion/comment/120399897#Comment_120399897

Why surely? The government don't seem to have any difficulty meeting their borrowing requirements, so why would they want to put up their cost of financing exactly?

Central Banks use interest rates to influence monetary policy nothing more. It does not mean the government or the banks should automatically increase their financing costs if they don't need to.

betonit

What's a solidarity bond?

Jim_Hodge

https://www.boards.ie/discussion/comment/120400345#Comment_120400345

A 4 or 10 year state savings product. Similar to State Savings Certificates or Bonds.

Jim_Hodge

State Savings rates have been increased a bit.

Interest rates on some State savings product to rise (rte.ie)

Henry Ford III

https://www.boards.ie/discussion/2058287576/should-deposit-rates-match-interest-rates

Banks need to make a margin.

Jim2007

https://www.boards.ie/discussion/comment/120402729#Comment_120402729

It's not the simple though. First off you need to find relatively low risk opportunities to lay off the money coming in the door which is always difficult in recessionary times. And then you also need to handle the fact that the money is on demand, you need to be in a position to hand the money back when the client needs it and that demand is random and more frequent in recessionary times. Retail banking is actually a poor business to be in as evidenced from the two banks leaving the country and the wipe out of CS last weekend.

RCSATELLITES

Just put some savings into Raisin Bank for 1 year fixed terms with 3.21% interest. Took the savings out of Bank of Ireland were only recently they increased the rate to 0.75%.

Seems like it's only Irish banks that need to make a margin. I wonder how other bank in the EU make money.

Not only do Irish banks rip us off with transaction fees, maintenance fees but also lousy interest rates.

Main bank: N26 free account

Savings in Raisin and propertybridges.

Jim2007

https://www.boards.ie/discussion/comment/120425663#Comment_120425663

To start with you are not comparing like with like to start with. Raisin acts as a feeder to banks that can't obtain sufficient funds locally and Property Bridges is a subprime lender using your funds as financing. And in the case of Property Bridges its subprime lending to a very high risk asset class. In both cases the return should be considerably higher than on offer by BOI as you are taking on a higher risk. Nobody pays you a higher rate because they are nice guys, they do so because they have to.

When it comes to subprime lending in property, you'd want to be getting some were north of about 10% to justify the risks involved, that is assuming the return on a well diversified equity portfolio is about 6% - 7%. P2P is an attractive business model because you are able to source funds cheaper that you could from the professionals and with a lot less scrutiny. But it is every bit as risk and possibly more so than the MBS stuff that was being peddled pre 2007.

As for how mainland European banks make money... they ones I worked for, in order of profitability: Asset management, Investment banking and private banking. You only do domestic/high street banking because you have to to get a license and you hope that you'll be able to funnel a lot of it into one of the profitable areas. Irish banks are basically privately held building societies - it a weird market, which is why EU banks are not interested in it or do badly if they try.

Jim_Hodge

https://www.boards.ie/discussion/comment/120425663#Comment_120425663

Raisin's not a bank as such. You'll get higher interest with higher risk anywhere. Good luck with it but I prefer security at this stage.

Heraclius

https://www.boards.ie/discussion/comment/120426335#Comment_120426335

I'd like a bit of clarification on this. Aren't the deposits with the partner banks guaranteed?

RCSATELLITES

https://www.boards.ie/discussion/comment/120426344#Comment_120426344

Yes they are protected by the EU €100,000 the same as any bank in ireland. The guys must work either for the government or an Irish bank as they are scaremongering on this forum.

I was talking about Raisin when I say it's risk free and covered by the €100,000.

Propertybridges is a different investment and we are only taking about deposits here.

I just said my savings where in propertybridges aswell, theses are savings I am happy to risk, for better returns than 1.0%.

Jim2007

https://www.boards.ie/discussion/comment/120426344#Comment_120426344

It's never that simple, although most people will simply the situation to make it easy for themselves... Raisin is a feeder for these third party banks and as such you'll need to look at each individual 'deposit' to understand what is involved. Things you'd want to look at:

• Is the third part bank's product a deposit account within the meaning of the guarantee
• Who receives the guarantee, Raisin or you
• Who does the guarantee actually work
• How would you actually recover your deposit if things went pear shaped

For instance if you ask any Swiss bank if they are government guaranteed they'll tell you yes of course. But that is not the full picture - there are two different levels: A federal guarantee and a Kanton (county) guarantee, a federal guarantee trumps a Kanton one because a Kanton is far more likely to go bust than the federal government. And there are guarantees that are capped at 10b, so in such a case a bank with 50b in AUM the guarantee is closer to 20k than 100k and so on.

The bottom line and something that never changes is that when you are offered a product with a return greater than that offered by a simple deposit account at your local bank, you are always taking on additional risk and if you don't understand that risk you need to think very carefully about proceeding. In three decades I never met any banker who argued we should give the customers more money because we are nice guys, it just does not happen.

Heraclius

https://www.boards.ie/discussion/comment/120426702#Comment_120426702

Thanks for your reply.

I have been considering Raisin for a while. I was looking at a bank in Portugal. I've checked the Portuguese deposit guarantee website and the bank is listed. I don't know how to determine for certain that a particular account is considered eligible for the guarantee though. I also find it a bit weird how much higher the rate through Raisin is than if I directly opened an account with the bank. I don't feel very comfortable having an intermediary between me and the bank that has my deposits ultimately.

Jim_Hodge

https://www.boards.ie/discussion/comment/120426762#Comment_120426762

You have highlighted a feature of Raisin that I have never been able to make sense of. How can they offer a higher rate than the banks your money is supposedly being deposited in? I have also never been able to get clarity on who any bank guarantees apply to.

Jim2007

https://www.boards.ie/discussion/comment/120426762#Comment_120426762

https://www.boards.ie/discussion/comment/120426950#Comment_120426950

Banks have products just like any other company, there is no such thing as a generic deposit account, current account, mortgage etc.... different rates means you are looking at different products. Without having access to their models it is impossible to say, but for a start I'd expect money coming in through Raisin would be more long term and perhaps is modelled as a time deposit which usually attract better returns. Deposits could also be allocated to more long term projects or just more risky projects. It's anyone's guess.

RCSATELLITES

https://www.boards.ie/discussion/comment/120426335#Comment_120426335

That's sounds a bit paranoid to me. There is no risk as it's only a fixed term savings account. Retired at 38 with 3 properties fully paid without mortgages, I suppose I am doing something right. The interest they offer is basic for the EU (excluding this little island)

What products would you consider to provide security as you require?