Money expert’s warning to Irish households with €5,000 or more in savings

Are Irish Savings Losing Value? The Silent Impact of Inflation

The cost-of-living crisis has prompted Irish households to meticulously track spending, swapping brands and cutting back on non-essentials. However, financial experts warn that a significant opportunity for savings is being overlooked: the returns – or lack thereof – on existing savings accounts.

The Invisible Erosion of Savings

Many Irish households maintain savings accounts for unexpected expenses. Yet, the same diligence applied to grocery bills isn’t always extended to scrutinizing interest rates. Low rates, coupled with persistent inflation, slowly diminish the purchasing power of those savings.

“Our attitude towards where we preserve our savings needs to change,” explains Dan Malone, founder of honest.ie. “We readily spend time seeking the lowest prices at the supermarket, but often remain indifferent to whether our savings are in the most advantageous account.”

How Inflation Impacts Your Money

Inflation effectively reduces the real value of money over time. Consider a €5,000 savings account earning zero interest. After ten years, the balance remains €5,000, but its buying power diminishes. As Malone points out, that €5,000 might only purchase around €4,000 worth of goods in today’s money, representing a loss of approximately €100 per year.

This loss is often unnoticed because inflation is “invisible” – it doesn’t appear as a direct reduction in the bank balance.

Beyond Irish Banks: Exploring EU Options

The good news is that options exist to mitigate this silent erosion. Malone highlights that the landscape of banking has expanded, offering access to more competitive rates beyond traditional Irish institutions.

“Thankfully, gone are the days when we had only a handful of banks to choose from. Now there are dozens of banks available to people, and the best options are currently outside of Ireland. Many EU banks now offer much better rates, and your savings would be just as safe because of EU deposit guarantees.”

Government Acknowledgment of the Savings Gap

The issue of stagnant savings is gaining attention at the governmental level. Tanaiste Simon Harris recently acknowledged that Ireland “is lagging behind other countries when it comes to long-term savings.” He noted that approximately €170 billion is held in Irish bank accounts, representing a significant amount of capital generating minimal returns for savers.

Plans are underway to introduce an incentivized savings scheme, aiming to encourage greater participation in investment opportunities and address the complexities and tax rules that currently hinder many individuals.

What Can You Do Now?

Malone encourages individuals to take proactive steps. “People are astonished when they compare bank accounts side by side and discover that there are much better options out there for their savings.” He has launched honest.ie to simplify the comparison process and help individuals identify more favorable accounts.

FAQ: Savings and Inflation in Ireland

• What is inflation and how does it affect my savings? Inflation is the rate at which the prices of goods and services increase. It reduces the purchasing power of your money, meaning your savings buy less over time.
• Are my savings safe in EU banks? Yes, EU deposit guarantee schemes protect deposits up to €100,000 per depositor, per bank.
• How can I compare savings accounts? Websites like honest.ie allow you to easily compare interest rates and features of different accounts.
• Will the government introduce novel savings schemes? The Tanaiste has announced plans to bring a framework for an incentivized savings scheme to the Government in the first half of the year.

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