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Is it worth switching to online banking and what are its disadvantages? – The Irish Times

Online bank Revolut said on Thursday it would launch an instant-access savings account offering a 2 percent interest rate for a free account, rising to 3.49 percent for accounts that charge a monthly fee. This is far superior to what traditional Irish banks have to offer and highlights the pressure that so-called neobanks are now putting on the likes of AIB, Bank of Ireland and Permanent TSB.

What does Revolut offer?

The company has launched a demand deposit account that offers much higher interest than traditional banks here. It will offer 2 percent interest if a customer uses its free basic account. That increases through five levels to a rate of up to 3.49 percent, but that will cost you. The top-level “ultra” account carries management fees of up to €55 per month or €540 per year.

What does this mean for other banks?

It highlights rates offered by major Irish banks, long seen as disjointed given the ECB’s rise in interest rates over the past two years. “Even the lowest interest rate on Revolut’s new instant access account offering is 15 times higher than the average going rate for households at other Irish lenders in the key segment of the overnight market,” Simon said Barry, independent economist.

Is Revolut the only neobank offering higher savings rates than Irish banks?

No. While Revolut is by far the biggest player in this sector in Ireland, there are now many more options than there traditionally were, according to Daragh Cassidy of price comparison site Bonkers.ie. “People forget how many options there are now for savers,” he said. If we go back approximately 18 months, in practice the main offers came from the three main Irish lenders. Now companies like Bunq, Raisin and N26, among others, offer similar products.

With all the hype around Revolut, are there higher rates available elsewhere?

Yes. Germany’s N26, which has around 200,000 customers in Ireland, offers 2.8 per cent on its basic instant savings account, rising to 4 per cent interest on the top tier – branded “metal” – which costs 16.60 euros per month. Like Revolut, N26’s top-tier account includes extras like additional fee-free ATM withdrawals. Meanwhile, Bunq has offered 2.46 percent since the beginning of the year.

Given all these high rates, why don’t people move all their business to online banks?

This has been a constant problem for any new player in the banking space. While Revolut has 2.7 million customers here, many of them use Revolut for specific reasons but keep their salaries and savings elsewhere. In essence, people tend to stick with a lender once their salaries, direct debits and other payments are linked to that account. While opening a new account at an online bank is simple, the admin involved in moving your entire business to a new account may, to some people, seem more trouble than helpful.

I have read that these online banks are based outside of Ireland. How safe is my money?

This question has been another big reason why people don’t move all their business to online banks. Revolut, for example, is regulated from Lithuania. The funds are guaranteed by the Lithuanian deposit insurance system. Similarly, N26 deposits are protected by their German equivalent. “In that sense, there is no additional risk and you could argue that by spreading your money across multiple banks you are reducing the risk,” Cassidy says.

But if I have a problem with my account, what do I do?

This has been a recurring problem, and is perhaps why Irish banks are counting on people not to move locks, stocks and barrels. None of these companies have a physical branch in Ireland. “That’s probably the biggest issue they face,” Cassidy says. “If I have a problem with Bank of Ireland, AIB or Permanent TSB, when the time comes I can go to a branch and chat to someone face to face.” Meanwhile, Revolut’s customer service is done entirely through its app. Rightly or wrongly, customer service horror stories have repeatedly surfaced.

Are there any other drawbacks to using these accounts full time?

Another issue that Cassidy points out is the issue of Iban discrimination. There have been reports that some businesses and agencies have in the past refused to accept payments linked to Lithuanian Iban accounts, as Revolut did, although it has since rolled out Irish Ibans for customers here. N26 also uses German Ibans.

Will it be more difficult to get a mortgage if I use these lenders?

It should not be like that. Revolut doesn’t offer mortgages in Ireland, but Cassidy makes it clear that using a neobank account full-time won’t alone make a difference to your mortgage application. Essentially, if you want to borrow, say, a €300,000 mortgage that will ultimately allow you to pay much more than that, the banks will want your business. What they will want to do is see how you manage your finances. That means reviewing bank statements, among other questions. But that would be the same process if, for example, your current account was with AIB and you applied for a mortgage with Permanent TSB.

Will these high rates last?

This is a key question. Most of these products have variable rates, so they can be changed. With the European Central Bank set to begin cutting interest rates next month, deposit rates could well follow suit in the coming months.

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