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Chapter 1: What is the main topic discussed in this episode?
The Clare Byrne Show on Newstalk with Aviva Insurance.
Chapter 2: Why are we considered a nation of savers but still struggle with saving?
Now, as a nation of savers, do we actually manage to save much or enough? Do we know what we're doing to make the best of our savings and make them work hard for us? Consumer Affairs correspondent for The Irish Times, Conor Pope, thinks that we could do better. And he joins me now. Good morning, Conor.
Morning, Clare. How are you?
I'm very well. We've lazy savings, have we?
It's terrible. And I'm going to give you a figure now that's going to alarm most of your listeners. Irish people right now are needlessly giving Irish banks almost one billion euro every single year because they have their money in the wrong place. Now, that's not me picking a number out of the air. Those are figures that are suggested by the central bank.
And I'll just break it down for you very quickly. So Irish households are brilliant at saving money. And we have around 170 billion euros on deposit in Irish banks. But around 150 billion of that is currently resting in accounts that offer interest rates averaging less than 0.2%. And some of those accounts offer no interest at all.
And the thing that really bugs me sometimes is we put our money in these zero interest accounts. Our banks take that money and they put it into the European Central Bank and they get a deposit interest rate of 2%.
So without doing anything at all other than taking our money from where we lodge it and putting it into the European Central Bank, they're earning 10 times more than what they're offering you or me. And I'm going to paint an even bleaker picture because then you have to factor in inflation. Now, we all know that inflation is running at slightly over 3% now.
Could get a little bit worse, could get a little bit better. So that means if you've got ā¬100 on deposit in a current account that's offering no interest, that would be worth ā¬97 this time next year. But if you had ā¬10,000... in an account offering zero interest, it would be worth just 8,500 euros in terms of purchasing power in five years' time.
So that's where we are when it comes to savings. And I hate to start in such a bleak, from such a bleak perspective, but that's why I say we're terrible savers.
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Chapter 3: What alarming statistic highlights our poor saving habits?
And you think, I still have, and I will always have that 500 euro, and that's all that matters to me.
100%. And I think people are, it's understandable that people think like that. But I remember a couple of years ago, I think last year, bonkers.ie did a survey and they tried to establish why people don't move their money into more profitable savings accounts. And one in four people didn't know there was better rates out there than the negligible rate that they were getting.
So they're the kind of cohort that you're talking about. They're the ones that put the 500 quid in the bank and think, sure, I'm golden now. I'm on the pig's back. It's great. Then there's around 10% who think that, you know, around, it's just so much hassle moving money from one account to another account.
And then there's another percentage, 15 or so percent, who just don't have the money to save. And I think that those will chime with a lot of your listeners. Because, like, it's all well and good to talk about the $170 billion that we have on deposit. An awful lot of people are really struggling still. So what I would suggest to people who do have money...
on deposit and would be thinking to themselves, God, maybe I'm one of those people who's given my bank money that I don't need to give them. The Competition and Consumer Protection Commission site has a really good site table that just checks the rates that are on offer in various banks. around the country.
And the thing is, if you were to move from a zero interest account to a better one with one of the mainstream banks, you could get as much as 3% interest compared to 0.2% that they might be offering if you have it in your current account. But even the 3% isn't great because you've got to pay dirt tax on it and you've got to pay bank charges.
So there probably are better things that people could do with their savings if they were so inclined.
But you'll have people listening who think, I don't have the time to become a financial wizard to research all of this.
It takes about 20 minutes, Clare. And I know everyone thinks, oh, I'm so busy. But if someone was to say to you, put an hour's work into this,
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Chapter 4: How much interest are Irish households actually earning on their savings?
And I'll give you 200 quid. Most people would do an hour's work for 200 euro.
I would say so.
Most people would do an hour's work for 30 euro or 20 euro. So it does take a little bit of mental gymnastics to say, OK, I'm just going to set aside an hour to see if there's something better that I can do with this. Now, so I've mentioned like the banks. You can get a rate of 3%. And there are terms and conditions that apply to those rates.
But then there's, of course, the state savings schemes, you know, the government bonds and the like. If you go onto the website statesavings.ie, you know, you can look at how you can invest money with government bonds. And the nice thing about investing with government bonds is you buy the bond... you park it for five years, you don't think about it.
And when that bond matures, you get the money back plus the interest and you don't pay any dirt tax on it. So if you're looking at maximising your returns in one of the more traditional savings methods, that is certainly something that you could look at.
And what sort of returns are the government bonds paying people?
Are they beating the banks? Well, 100%. Now, it depends on the length of the bond. You can buy a three-year bond, a five-year bond, a 10-year bond. You can buy prize bonds. And all of those things offer different rates. But the key thing is they're all better than the banks and you don't pay any dirt tax on them. So automatically, if you're getting a 3% return or a 5% return...
and you don't pay the 33% that you would pay in dirt tax, you're already quids in on that score. And then there's the kind of the fintechs that people talk about a lot. Raisin is one of those banks that offers a rate of, I think, 3.1% for customers. And what they do is they offer you access to interest rates on banks from across 12 different European countries.
Now, some people might think, oh, that's a little bit more complicated. But, you know, it does pay if you do that. And, of course, then the other thing that's coming down the tracks, and I think people will be very mindful of this in the days and weeks ahead, is this new government savings scheme that the Minister for Finance, Simon Harris, will be unveiling in full in the budget later this year.
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Chapter 5: What are the consequences of inflation on savings accounts?
So they're not paying tax on the money that they make from the money that they have on deposit.
Have you noticed, Conor, that with the prospect of this new government savings scheme, that the finance industry and the lobby groups are really excited about it? And that makes people nervous.
Well, listen, whatever's good news for the banks is rarely good news for us. And I think that's a perception that an awful lot of people share because we were so badly burned during the economic crash in 2007 and 2008 and beyond. And because banks are in the business of making money, they're not in the business of making us money.
Now, all of their ads will tell you otherwise, but that's really what their end goal is. But I think when we look at the details of the scheme, I think an awful lot of people will say, hang on a second, this might suit me. This might be a way that I can maximise what my money is doing without any hassle or without much hassle, and then I'll pay a lot less tax on it.
But ultimately, when it comes to savings, if you're looking at where you can put your money, by far... the best thing that people can do in the longer term is to put money into their pension. Because it is still the most tax efficient and most profitable way that people can put their money into their savings.
But of course, if you're in your 20s or your 30s or your 40s, you're thinking, oh, jeez, I'm never going to retire. I'm going to live forever. And people don't tend to think of the pension as a good way to put extra money they have in. I'm not talking about, you know, a work pension or the state mandated pension.
I'm talking about if you had extra money and you chucked it into your pension, it would be by far the best way to maximise your returns.
I have a couple of questions and comments coming in from listeners, Conor. We'll just go through a few of them. This person has a little bit of money in savings, but I get so overwhelmed with all of this. I want to keep access to the money in case I need it in an emergency. I'm so worried about putting it into a long-term savings account. And you'll hear that a lot, won't you?
100%. And I think what people need to do, they need to think in three horizons. They need to think of the short term horizon, the medium term horizon and the long term horizon. So the long term horizon might be putting it into your pension fund. And that's money that you just say, OK, I'm not going to need this for 30 years. I'll put it away and it'll be great when I retire.
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Chapter 6: What factors prevent people from moving their money to better savings options?
Okay, Conor, we will leave it there. We'll talk again soon. Thank you so much for your time. That's Conor Pope, who's Consumer Affairs Correspondent with the Irish Times.
The Clare Byrne Show. With Aviva Insurance.
Weekday mornings at 9.
On Newstalk. Conversation that counts.