AIB plans to increase its fee on deposit accounts subject to negative rates to 0.75 per cent, the highest among Irish retail banks.
The latest move means that AIB increases the burden on major savers while continuing to protect families and businesses with less than €1 million in stock.
Meanwhile, although AIB indicated early last year that it plans to apply negative rates to personal accounts of more than 1 million euros by the end of 2021, this will only take effect from May.
The bank began telling customers on Monday about the changes.
AIB applies a negative rate of 0.5 per cent to affected accounts, in line with the fees that the European Central Bank (ECB) charges banks for excess deposits they hold.
In 2014, the European Central Bank became the first major central bank to implement a negative deposit rate policy, in an effort to get banks to increase lending and boost inflation and economic activity.
While the inflation rate in the euro area is twice the European Central Bank’s target of around 2 percent, the central bank sticks to the line that it does not plan to increase its rates this year because it considers the rise to be a temporary phenomenon caused by the reopening. of economies after the Covid-19 lockdowns.
Irish banks were initially reticent about passing the pain of negative rates on to customers.
However, they have expanded the network in recent years as they grapple with excess deposits, a problem exacerbated by increased household savings during the pandemic.
“AIB has isolated the vast majority of our clients during an ongoing period of negative European interest rates. The explosive growth in client balances, especially during the pandemic, has increased the cost to the bank of providing current and deposit product services, including the costs of negative interest rates,” a spokesperson said. Emphasizing the changes in the rate and floor to The Irish Times, as a result, the Bank has continued to keep its negative interest strategy under constant review.
Last year, AIB lowered the threshold for commercial deposits subject to negative rates from €3 million to €1 million, a limit also adopted by the Bank of Ireland and Ulster Bank, which each apply negative rates of 0.65 per cent to those affected. accounts. The Bank of Ireland also began charging fees to personal customers above this level late last year.
AIB said the higher negative rate of 0.75 percent would come into effect from the end of March.
About 12 billion euros of AIB’s 91 billion euros of deposits were subject to negative rates as of the end of September, according to a recent trading update. It was planning to have €16 billion of deposits in this category by the end of the year. The spokesman declined to give an updated number.
The outlook for ECB rates contrasts with some of the other major central banks. The Bank of England raised its key interest rate last month in response to rising consumer prices after economies reopened globally from asymmetric Covid-19 lockdowns.
The US Federal Reserve has indicated that it plans to raise interest rates three times this year, although financial markets are increasingly taking into account four increases. Neither of them applied negative interest rates.
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