Analysis: The challenge of making savings work harder for Irish households will persist unless consumer habits shift or new policies emerge
At the end of January this year, Irish households held over €163 billion in deposits in financial institutions, marking the highest level on record. While this figure suggests a strong savings culture, it reveals a paradox. Irish savers are accumulating savings in an environment where inflation and low interest rates erode their modest gains, so why do we continue to favour traditional deposits over higher-yield alternatives?
Historically, Irish consumers have had a turbulent relationship with financial institutions, shaped significantly by the Global Financial Crisis of 2008. The crisis left many risk-averse, steering them towards deposit accounts rather than investments. At the time, banks aggressively competed for deposits to meet regulatory capital requirements, temporarily offering attractive rates.
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From RTÉ Radio 1’s Morning Ireland, Kevin Quinn from Bank of Ireland on new findings around savings and savers in Ireland from their latest savings and investment survey
But the past decade has brought new challenges, particularly concerning interest rates and inflation. The European Central Bank (ECB) has maintained negative interest rates, discouraging banks from holding excess deposits and leading to poor returns for savers. Many banks even charged negative interest rates to large corporate depositors. While interest rates rose sharply post-pandemic to curb inflation, banks passed these hikes on to borrowers more swiftly than to depositors. By late 2024 and early 2025, a series of ECB rate cuts reversed this trend, further diminishing returns on savings accounts.
However, the State also provides savings products. Ireland has witnessed the evolution of various savings products over the years, from Special Savings Incentive Accounts (SSIAs) in the early 2000s to more recent state-backed options.
Recent Government-backed initiatives have struggled to match their predecessors’ success. For example, prize bond sales declined by 20.6% in 2023, with redemptions increasing by 46.7%, leaving the overall fund value at €4.7 billion. Prize bonds are losing popularity due to inflation and the lack of guaranteed returns. Yet, they persist, driven by perceptions of security and the lure of a potential windfall. Critics also argue that state savings products are anti-competitive, providing tax-free returns that distort the market.
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From RTÉ Radio1’s Liveline, what’s the story with prize bonds?
The Covid pandemic significantly altered savings habits. With limited spending opportunities during lockdowns, household savings soared. However, banks and credit unions struggled to offer competitive interest rates. Credit unions, in particular, faced regulatory constraints on deposit limits, making it difficult for them to remain competitive in the current market. The unusual situation of financial institutions turning away depositors signals a lack of healthy competition in the market.
With traditional banks offering poor returns, fintech disruptors like Revolut and N26 have emerged with more attractive rates and flexible savings features. But their rise has not been without challenges. Concerns over fraud, financial security and consumer service, as well as difficulties accessing funds, have made some consumers hesitant, as well as reluctance from non-tech savvy individuals. However, traditional banks are not immune to these challenges, with several phishing campaigns targeting Irish banking customers in recent years and growing ever more sophisticated.
The age profile of savers in Ireland is heavily weighted toward older individuals. Many younger individuals, burdened with high rents and a rising cost of living, struggle to accumulate significant savings. When they do save, it is often for a specific purpose, such as a home deposit, making them less sensitive to interest rate fluctuations.
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From RTÉ Radio 1’s Today with Claire Byrne, financial advisor Eoin McGee on the best way to make the most of your savings
Meanwhile, older generations, particularly those on high incomes, or who have repaid their mortgages and have disposable income, tend to favour traditional banks despite poor returns. Banks capitalise on this inertia, referring to these deposits as “sticky”, funds that remain despite low interest rates.
Governments worldwide have experimented with direct-to-citizen savings bonds, bypassing traditional banks to offer better returns and improve competition in the savings market. While Ireland has yet to fully embrace this model, it remains a topic of discussion. Meanwhile, banks continue to benefit from a high net interest margin, the difference between the interest they earn on loans and the rates paid on deposits. Despite ECB rate increases, Irish banks have been slow to pass on improved savings rates, prioritising profit maximisation instead.
Inflation remains a critical concern for savers. Even during periods of higher deposit rates, real returns are often negative when adjusted for inflation. The lack of accessible, risk-moderated investment options exacerbates the issue. Ireland’s 33% Deposit Interest Retention Tax (DIRT) further reduces the benefit of moving funds to higher-yield accounts. Ireland has no equivalent to the UK’s tax-efficient Individual Savings Accounts (ISAs), making it harder for ordinary savers to grow their wealth.
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From RTÉ Radio 1’s Today with Claire Byrne, Irish banks labelled “laggards” over failure to pass on improved interest rates to savers
Geopolitical instability, economic uncertainty and market volatility further discourage risk-taking among Irish savers. While investment options such as equities, bonds, and ETFs are now more accessible than ever, many still prefer the perceived safety of cash deposits. Proposals for an ISA-style scheme in Ireland have focused on funding SMEs and start-ups, sectors that inherently carry more risk, limiting their appeal as a mainstream savings vehicle.
Ireland’s record-breaking savings levels mask deeper structural issues, including low returns, inflation erosion and a lack of compelling alternatives. While fintech and policy changes could reshape the landscape, many savers remain stuck in a cycle of low-yield deposits, an outcome that benefits banks far more than depositors. The challenge of making savings work harder for Irish households will persist unless consumer habits shift or new policies emerge.
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The views expressed here are those of the author and do not represent or reflect the views of RTÉ
