Stephen McNeice
Stephen McNeice

20.34 31 Jul 2020


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Depositing money in a bank is likely to "come at a cost" in the future, a financial advisor has suggested.

It comes after Bank of Ireland announced it is set to apply negative interest rates on money held in pension accounts from September.

It essentially means that the bank will charge customers to hold cash in those accounts.

The Irish Independent reports it's the first time negative rates will have been charged to consumers, with the 0.65% rate to be introduced from September.

What does the measure mean for Bank of Ireland customers? Paraic Kissane, financial advisor, spoke to The Hard Shoulder to explain the situation.

Depositing money in banks likely to 'come at a cost' in the future

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He said deposits in banks have traditionally been seen as 'safe havens' for a lot of people, which was "all good and well while deposit accounts were returning interest rates".

He said: "As you have seen, the interest rate environment today - for the past possibly ten years or more - has been a low interest rate environment.

"This is the first of probably more to come, where deposit returns - in other words, safety - will come at a cost."

Mr Kissane explained that, in simplistic terms, if someone has €100,000 in a Bank of Ireland deposit account through a pension fund right now gaining 1% interest per year, the fund would be worth €101,000 next year (prior to fund management charges and other fees being deducted).

However, the changes mean that same amount would decrease by €650 per year.

He said: "I don't believe the pension fund is where this will finish - I think negative deposit returns on ordinary deposits... is going to start happening.

"Banks are beginning to realise that a lot of the profit models and the deposit models we grew up with are changing in the current low rate environment."

Mr Kissane said he has 'no doubt' that other institutions will follow Bank of Ireland's example.

He said: "It's only a matter of time. If you look at the deposit levels held in banks by ordinary depositers in this country... there's a lot of money on deposit.

"That has to be available [to the customer] any day they walk in to get it, that means it remains on deposit within the bank. That is costing a bank, and it will be passed on to the customers. I think we'll see it more and more."

Main image: File photo. Picture by: Utrecht Robin/ABACAPRESS.COM/ABACA/PA Images

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