From mortgages to current accounts, customers have every reason to believe they are being ripped off by banks. Yet there are ways to diminish the pain, says Mark Channing
Banks have been accused of ripping off thousands of homeowners in an industry-wide scandal by wrongly denying them access to cheap tracker mortgages. Interest charged on tracker mortgages is tied to the European Central Bank’s wholesale rate, currently at an all-time low of 0%.
The interest on a typical tracker mortgage is about 1%, compared with almost 3.8% for a variable rate mortgage, making the loans hugely valuable to homeowners. In 2015 Permanent TSB admitted about 1,400 of its mortgage holders had been wrongly denied access to their tracker.
More recently AIB and Bank of Ireland said they had overcharged thousands of their tracker mortgage customers. The full scale of the scandal was revealed last month when the Central Bank of Ireland revealed that 15,000 mortgages across 15 lenders may have been overcharged.
However, the tracker mortgage scandal is not the only practice where Irish banks have been accused of overcharging — albeit legally.
Last month the Professional Insurance Brokers Association (Piba) claimed homeowners were being “robbed” by banks charging exorbitant mortgage rates.
Savers also have reason to feel aggrieved with the interest levels on Irish deposit accounts among the lowest in Europe.
“People feel bruised and abused by banks over the last number of years,” said Simon Moynihan of the price comparison site Bonkers.ie. “And it’s easy to see why when you look at what they charge for loans compared with what they pay out on savings.”
From mortgages to savings, we lift the lid on the big bank rip-offs and tell you how to fight back.
Banks are robbing both variable and fixed rate mortgage customers compared with those in the rest of Europe, say interest groups. Fair Mortgage Rates Campaign, a pressure group aimed at getting banks to cut rates, says variable rate mortgage holders in Ireland are being “fleeced”.
Irish homeowners pay an average interest rate of 3.38% for variable mortgages, as opposed to to an average of 1.72% in the eurozone.
It means an Irish borrower with a €300,000 mortgage pays €200 a month more than a French or German borrower with the same debt.
“The reality is that the banks can charge high variable rates because there is no competition in the Irish market and because the Central Bank is doing nothing to protect consumers from being fleeced,” said the campaign.
Banks also stand accused of cheating homeowners by not offering competitive long-term fixed interest rates that are common in Europe.
Rachel McGovern, chief operations officer with Piba, said: “Rates in France for a mortgage fixed for 20 years are as low as 1.85%. By contrast, in Ireland no lender is offering such fixed rates, either at such a low rate or for such a lengthy period.”
The longest fixed-rate mortgage available here is Bank of Ireland’s 10-year fixed rate, where borrowers with more than 40% equity in their home can fix at 3.95%.
This contrast with the best fixed rate in France means an Irish borrower pays €49,000 more in interest than a French borrower on a 20-year €200,000 mortgage. “There is absolutely no rationale as to why Irish mortgage holders should not have the option of genuine long-term fixed interest rates,” said McGovern.
Until banks cut their rates, switching to the cheapest lender is homeowners’ best line of defence.
Research published by the Central Bank estimated that 27,000 potential switchers could save more than €10,000 over the lifetime of the loan by switching.
Eurozone savers earn more than three times the interest for cash on deposit than the average Irish saver. The average interest rate paid by Irish banks on new deposits is 0.13%, compared with 0.46% paid in the eurozone, according to the Central Bank.
One-year returns for savers in France, Italy and Cyprus are 1.08%, 1.07% and 1.66% respectively, according to the European Central Bank.
Late last year, the Central Bank of Ireland suspended Raisin, an online broker that gave Irish consumers access to savings accounts elsewhere in Europe.
It means savers can do little to increase their returns other than keep their cash in the best-paying Irish savings account.
The highest one-year rate on the Irish market is KBC Bank’s 1.05%. However, this is restricted to the bank’s current account customers. Otherwise, the best rate is 0.8%, also from KBC.
It costs €1,000 more to borrow €10,000 over five years from the typical Irish bank compared with one in the eurozone. The average interest rate offered across Ireland’s five main banks for a five-year personal loan is 8.76%. The equivalent rate in the eurozone is 4.96%.
It means the cost of borrowing €10,000 in Ireland is €12,288, compared with €11,281 in the eurozone.
“Banks seem to be taking a ‘nothing to see here’ attitude when it comes to lending,” said Moynihan. “Despite wholesale interest rates having fallen to 0%, there has been very little movement in interest rates for borrowers.”
Always compare the total cost of credit when choosing a personal loan, and do not be swayed by a low monthly repayment amount. At 6.3% APR, KBC offers the cheapest personal loan, although you have to have your current account with the bank — otherwise the rate is 7.3%.
Interest charged on Irish credit cards is above the eurozone average, and we pay more than twice as much interest on our overdrafts. The average credit card interest rate is 19.85% in Ireland, in contrast with 16.70% in the eurozone.
The average Irish overdraft interest rate is 13.83%, but just 6.4% in the eurozone. Carol Brick of HerMoney, a division within CWM Wealth Management, said: “Avoid running up the crazy interest rates that credit card companies demand; try to clear your balance each month or pay off as much as you can.”
Banks charge rip-off rates and sky-high commissions to exchange foreign currency. For example, to convert €1,000 into sterling with AIB you would pay a mark-up of more than €30 on the live exchange rate — as well as a commission of €6.35.
Barry Dowling of the currency broker Transfermate said: “Although your bank manager may tell you differently, your bank will not provide you with the best currency exchange rates in the market.”
You can avoid the rip-off rates by turning to a specialist currency broker such as Transfermate or a global money app such as Revolut.
FEES AND CHARGES
From 35c per cash machine transaction to €3 a page for a duplicate statement, banks earn millions of euros from myriad fees and charges. “There’s a list as long as your arm of banks’ fees and charges,” said Moynihan. “The best advice is to try to avoid them where you can.”
You can reduce fees by taking advantages of services such as contactless payments or by switching current account.
AIB and KBC have the easiest requirements to qualify for free banking. AIB waives fees for customers who keep €2,500 on deposit at all times, while KBC requires you to lodge €2,500 into your account every month.