Future Direction of Bank Deposit Rates?

penmarked

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With the recent increase in ECB rates, any ideas when Bank Deposit Rates will start increasing too?
 

skrooge

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556
Not any time soon .

Irish banks are awash with deposits. More than they need or want. They can't lend it out so have to put it in government bonds or deposited in the ECB attracting negative rates. They will be happy for you to take your deposits elsewhere.

Factor in Ulster Bank deposits will need to find a home - further excess supply - and no reason for deposit rates to tick up.

Always the potential that the likes of raisin might attract a lot of deposits but I doubt Irish banks are alone with having excess deposits.
 
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peemac

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Isn't the ECB deposit facility at -0.5%. That may be moved to 0% in July or between July and September. So only possibility is that the negative deposit rates for large deposits may reduce at some point this year.
 

Paul O Mahoney

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Nothing is going to change, we now enter a new cycle of the same economics that has been " new" for thousands of years.

I hope this cycle might be different in that we recognize that the financial world and the countries actually have enough to feed and house everyone on the planet......tomorrow.

The strife facing the world would be eliminated instantly, like tour morning coffee.
 

joe sod

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1,641
Not any time soon .

Irish banks are awash with deposits. More than they need or want. They can't lend it out so have to put it in government bonds or deposited in the ECB attracting negative rates. They will be happy for you to take your deposits elsewhere.

Factor in Ulster Bank deposits will need to find a home - further excess supply - and no reason for deposit rates to tick up.

Always the potential that the likes of raisin might attract a lot of deposits but I doubt Irish banks are alone with having excess deposits.
It's not that they can't lend it out they are required by regulations to keep a large proportion in "safe assets" government bonds , it's basically cheap money for governments that's what you are doing when you leave your money on deposit
 

skrooge

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It's not that they can't lend it out they are required by regulations to keep a large proportion in "safe assets" government bonds , it's basically cheap money for governments that's what you are doing when you leave your money on deposit

There is a bit of this but those rules have been round for a while now. If you look over the course of the pandemic the level of household savings increased significantly. They couldn't lend this out at the same pace it was coming in.

Also banks had no idea how long this savings blip would last. There is a lot of defered spending in there that they couldn't be sure how long it would take to unwind. As a result the easiest thing to do was put it in a low risk liquid asset class.
 
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4,954
Yeah, most deposit rates will not increase fully in-line with potential ECB rate increases for the moment because:
- Irish banks are awash with deposits.
- Irish banks do not need to attract more deposits.
- As things currently stands, Irish banks pay negative rates on some surplus deposits.
- KBC and Ulster Bank deposits compounding the problem.

BUT
- If the ECB negative deposit rate gets less negative, then it is plausible that business deposit rates and high personal deposit rates (typically 1m/3m+) will improve in line with the ECB increases.
- If the ECB deposit rate goes significantly positive, then banks might have the incentive to look for retail deposits again.
- Even if the Irish banks do not need deposits, there are non-Irish bank competitors in the market, who might see an opportunity to take market share.
- Media pressure may happen. If Irish banks hike mortgage rates, but do not touch deposit rates, despite the fact that deposits fund the mortgages, some media pressure may occur, but this might make little to no difference.

In the US, increases by the FED, have caused slight increases to the average deposit rates. Maybe we will see some token increases here too.

Deposit rates may have bottomed finally but in most cases will be very slow to move in the other direction.
 

Allpartied

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296
One of the purposes of increasing interest rates is to remove money from the economy. Not only by increasing the rate of interest on debt, but also by encouraging people to save money.
If the interest rate on deposits doesn't increase then that incentive will fail. In fact, with inflation at 7 or 8% and deposit rates sitting at 1% or less, the sensible thing to do with excess cash, would be to spend it and spend it quickly. That , of course, would increase the velocity of money and increase inflation.
So the state would have to step in and increase their saving rates on their deposit/state savings schemes. At that point sensible people would push all their savings into state savings.
At the moment, a quarter percent increase in deposit rates, would not be much of an incentive. If people have spare cash, they should spend it on things they need. The current saving rates coupled with rampant inflation, mean saving money on deposit is a mugs game.
 

Protocol

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@Allpartied,

yes, increasing the central bank discount rate is designing to slowdown the growth rate of the money supply, by slowing down bank lending.



However, please note that increasing savings does not mean less spending.

If I save into a bank or CU, those savings are spent, not be me, but by somebody else, the borrower.

Remember, in any economy: all income = all expenditure
 

NoRegretsCoyote

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4,064
In the US, increases by the FED, have caused slight increases to the average deposit rates. Maybe we will see some token increases here too.
Below you see 15-year fixed rate mortgage costs (top) and retail deposit rates (bottom) in the US>

Deposit rates seem to have ticked up in response to mortgage rates, although not as much yet.


fredgraph.png
 
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