Savers in Northern Ireland earn the lowest amount of interest anywhere in the United Kingdom, while small firms here pay the highest rates of interest to banks on their borrowings, according to research just published.
The findings from the ESRC Centre for Competition Policy suggest that Northern Ireland customers suffer from less competition between banks than in other regions.
Analysis of interest rates on savings acounts between 1996 and 2002 shows that savers here with £1,000 in an instant access account earned on average just 2.02%. That compares with a UK-wide average of 2.86%, or 3% in London and the South East.
Savers with £10,000 in an instant access account would, on average, have earned 2.93% in Northern Ireland, against nearly 4% in London. Interest rates in notice savings accounts in Northern Ireland also earned less than the UK average.
Dr John Ashton, author of the study, believes that the findings reinforce concerns that the banking market is less competitive in Northern Ireland than elsewhere in the UK. “Northern Ireland is probably the most distinct market in the UK,” he says.
The study shows that small value savers suffer the biggest loss of interest compared to other parts of the UK. “Maybe institutions [in Northern Ireland] are not that interested in the smaller deposit market,” suggests Ashton.
“The other issue is how banks compete with each other,” he says. “Banks do take into account what the others are doing. This does raise a cause for concern, with very, very low rates indeed compared to the rest of the UK.”
Ashton says that more research is needed into the factors that determine how much interest banks pay on accounts and how much they charge customers. His report also reveals that small firms in Northern Ireland pay the highest rates of interest on loans of any region in the UK.
The study covered a period before the Competition Commission’s inquiry into the banking market in Northern Ireland, which reported two years ago and required banks here to implement a number of measures to improve competition. But the Commission’s report focused on fees, charges and interest rates on borrowings, rather than on interest paid to savers.