Irish household savings rose by €1.1 billion in May when compared to April, according to data published by the European Central Bank.
The increase comes on the back of a €140m dip in savings levels in April, and brings total household deposits to €155.6 billion.
“The really important piece of context here which makes all of this possible is the fact that Irish households, on aggregate, continue to benefit from very rapid income growth and that’s directly connected to the strength of the labour market,” said economist Simon Barry.
“Employment growth is continuing at a healthy clip, wages are rising at a healthy pace and that combination means that overall income in the Irish household sector are growing at a really strong pace,” he said.
“That makes a lot of really good things possible, including spending, but also including deposit accumulation,” he added.
Year-on-year, household deposits have grown by €4.5 billion, according to the data.
However over the same period there has been a €3.4 billion drop in overnight deposit balances.
That coincided with a €8 billion increase in term deposit accounts, as consumers here sought to take advantage of higher interest rates.
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“These balances pay very, very little – on average just 0.13% – for keeping your money in a standard overnight account,” said Mr Barry. “Rates available on term deposits, if you’re willing to put your money away for a period of time, are, on average, about 2.65%.”
Irish consumers had been slow to move their money to long-term savings accounts in the wake of higher European Central Bank rates, but that shift is now happening.
Irish savers are still lagging behind their European peers, however, meaning households here are missing out on improved returns.
“In Europe, the average share of the overnight segment in total household deposits is about 54% – Ireland is way off that,” said Mr Barry. “We’re the highest among the Eurozone states, our number is 88% plus.
“So even though our number is starting to come down, it’s coming from really, really high levels and Irish households have an incentive to be more proactive in how the manage their balances.”
With ECB rates starting to fall, there is the potential that savings rates will decline too.
However, Mr Barry said the unique dynamics of the Irish market mean deposit rates here may stay higher for longer.
“One interesting feature of the Irish market is that, up until recently, it was charactarised by weakened competition reflecting the departures of Ulster Bank and KBC,” he said.
“But other providers have come to market with interest rates that are extremely attractive relative to prevailing market averages, so competition is starting to ramp up,” he added.