Making Cents: How to ‘Raisin’ your interest rate

RECENTLY I was telling you about a gentleman who contacted me, asking whether there were better accounts available that would pay a higher rate of interest than what he was currently earning.
And because I received quite a response from readers regarding the piece, in this week’s article I’m going to elaborate with some additional information I shared with him.

If you read or missed last week’s article, let me quickly bring you up to speed.

Aside from wanting to improve his interest rate, he had three additional parameters that any new account he’d consider must have, and they were (a) he wanted instant access to his money because it could be used to purchase a property (b) he wanted his capital 100% guaranteed and (c) he didn’t want any charges applied to his account.

With his existing bank, he had immediate access to his money, no charges and his capital was guaranteed, which by the way was €30,000. However the big letdown was that the account was earning an interest rate of just 0.10%. And that was a gross figure so when you factor in DIRT tax, his net rate is 0.067%.

Which means that the interest he’d earn on his €30,000 over a 12-month period would be €20.10.
It was shockingly bad, and it was unsurprising that he was enquiring about the existence of any other accounts that would pay him a better rate.

Because he was keenly aware that if he wanted his money to just hold its value it needed to be generating 2% net per year. Which meant he needed his €30,000 to grow in value by €600 every year and even at that, he wouldn’t be making any money, it would just be holding its value.

Anyway, the good news was that there was an account that would deliver this return for him, and the even better news was that he’d still have immediate access to his money and the capital was also 100% guaranteed.

And I found that account for him online via an on-line deposit account institution called, Raisin Bank (www.raisin.ie)

First launched in Ireland in 2019, their purpose was to disrupt the financial sector by offering an extensive product portfolio of banking products from our partner banks to customers across the EU.

In short, their platform allows Irish savers to get better interest rates on their savings from banks across the EU. They have partnered with over 400 banks situated in the likes of France, Italy, Spain, Holland, Sweden, Austria, Latvia, Poland, Portugal, Czech Republic and so on.

And when I had a look at what accounts were available on the Raisin Bank platform, where you have (a) immediate access to funds (b) the capital is 100% guaranteed and (c) the interest rate was good, the best I could find was an account with a Swedish Bank named, Nordax Bank.

They are offering a gross return of 3.05% on monies where there is no specified term i.e. you have immediate access to your money.

So, if the individual I was telling you about deposited €30,000 with them and he didn’t use the money over 12 months and the interest rate stayed the same, he’d earn net €612 in interest.

When I brought this to his attention and after doing some research himself, he was very happy to open an account with them and in fact has since done so.

And rather than earn €20.10 in interest with his current bank, he can now multiply that number 30.44 times after having moved his account to Nordax Bank.

And it really is worth having a look at this platform to see what other banks across the EU are offering and when you stand their rates against some of the ones being offered by Irish institutions, the differential can be significant as I’ve just outlined.

I looked at other offerings on the raisin website and discovered you can get a fixed rate of 3.45% fixed for 6 months with A&G Banco, a bank in Spain, whereas the best rate on offer with an Irish bank at the moment for the same time period is just 2%.

The best 1-year fixed rate from an Irish bank at the moment is 2.75% whereas you can get a rate of 3.45% fixed for 1 year with TF Bank AB in Sweden.

I could give you similar examples over periods of 3, 6 and 9 months and over 2, 3, 4 and 5 years as well.

I remember reading a report at the end of last year which if I recall correctly said that the average interest rate people in Ireland are earning for money on deposit where they have instant access to their funds is 0.13%. I think this number includes both current accounts and demand deposit accounts.

And if people continue to do nothing and leave these monies on deposit which collectively is about €140 billion, it means Irish savers are missing out on about €3.5 billion in interest each year.
Perhaps the reason why people aren’t being more proactive with their savings is because they think that trying to get any sort of a decent return for monies on deposit at the moment is impossible without placing your money at risk and that’s not quite correct because as I’ve just shown you we do have access to banks that are offering rates that admittedly may not make us rich any time soon, but at least they can protect the value of what we’ve saved and that’s hugely important.

If people aware of these accounts that I’ve just referred to, then why could there still be a reluctance from them to open these accounts on-line?

And I’m not sure, but maybe it’s because they feel their money is more secure in an Irish Bank but that’s not true either because within the EU, all depositors are covered equally by the respective national deposit guarantee scheme of the country where the bank is located, regardless of their nationality or country of residence. Which means your money has the same protection as it has in Ireland throughout the entire EU.

And just suppose one of these banks fails in Sweden or Italy or whenever in the EU, under Article 8(1) of a directive 2014/49/EU, it states that as of 1 January 2024 the maximum legal time allowed for reimbursement i.e. the period between the determination by a competent administrative authority that a case is eligible for compensation by the Deposit Guarantee Scheme and the time when the funds are reimbursed, will be 7 business days.

My advice is to have a look at these accounts yourself on platforms like raisin especially if you are disappointed with what you are currently earning. And when you do, you’ll see you have access to over 50 different deposit accounts from all over Europe. I’d also say you should familiarize yourself with the guarantees and the protection you have and have a look at their help center and the frequently asked questions section and then have a look at what the process is like to get an account in place and when you do, you’ll see it’s not a difficult one.

And as I see it, if you have money sitting on deposit earning <0.50%, you have three choices.
The first is do nothing and leave it where it is.

But if you think that by doing this it’s at least holding its value, think again because it’s not, it’s being ravaged by inflation, and I mean ravaged. Your savings have to be earning a minimum of 2% net for them to just hold their value.

The second is to invest in equity-based accounts but you do so knowing there is no explicit capital guarantee, and the value of your investment could fall in value and how much it could fall will depend on the type of account and what it invests in.

If that tolerance for risk is too much and the potential loss to any part of your capital doesn’t sit well with you, then option number 3 is seeking out banks that offer that capital protection but also offer a rate that matches inflation.

And if you thought that option 3 didn’t exist, I’m hoping that after reading this that you now know they do. And what you do with this newfound information is now up to you.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie or www.harmonics.ie