Revolut’s new savings account: Is it worth switching to the online bank and what are the drawbacks?

Online bank Revolut said on Thursday it would roll out an instant access savings account offering an interest rate of 2 per cent for a free account, rising to 3.49 per cent for accounts that charge a monthly fee. That’s far in excess of what the traditional Irish banks have on offer and throws into sharp focus the pressure so-called neobanks are now bringing on to the likes of AIB, Bank of Ireland and Permanent TSB.

What is Revolut offering?

The company has launched a demand deposit account offering much higher interest than the traditional banks here. It will offer 2 per cent interest if a customer is using its basic free account. That rises through five tiers to a rate of as much as 3.49 per cent but that will cost you. The top level “ultra” account carries a management charge of as much as €55 per month, or €540 per year.

What does this mean for the other banks?

It throws into sharp focus the rates offered by the main Irish banks, long seen as desultory given the increase in ECB 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 prevailing average rate available to households from other Irish credit institutions in the key overnight market segment,” said Simon Barry, an independent economist.

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

No. While Revolut is by far the biggest player in the space in Ireland, there are far more options now than there were traditionally, according to Daragh Cassidy of price comparison site Bonkers.ie. “People forget how many options there are out there for savers now,” he said. Go back 18 months or so and in practice the main offerings came from the three main Irish lenders. Now the likes of Bunq, Raisin and N26 among others are all offering similar products.

[ Revolut launches savings account with interest of up to 3.49% a year ]

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

Yes. Germany’s N26, which has about 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 per month. Like Revolut, N26′s top-level account includes extras such as additional ATM withdrawals without fees. Bunq meanwhile, has offered 2.46 per cent since the start of the year.

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

This has been an ongoing issue for any new player in the banking space. While Revolut claims 2.7 million customers here, many of those are using Revolut for specific reasons but keeping their wages and savings elsewhere. In essence, people tend to stick with a lender once their wages, direct debits and other payments are tied to that account. While opening a new account with an online bank is straightforward, the admin involved in moving all their business to a new account can, for some people, feel like more trouble than its worth.

I’ve read that these online banks are based outside Ireland – how safe is my money?

This question has been another big reason for people not shifting all their business to the online banks. Revolut, for example, is regulated from Lithuania. Funds are guaranteed under the Lithuanian deposit guarantee scheme. Similarly, N26 deposits are protected under the German equivalent. “In that sense there is no extra risk and you could argue by spreading your money across various banks you are derisking,” says Cassidy.

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

This has been a recurring problem, and is perhaps why the Irish banks are counting on people not moving lock, stock and barrel. None of these firms have a physical branch in Ireland. “It’s probably the main drawback they face,” says Cassidy. “If I have a problem with Bank of Ireland, AIB or Permanent TSB, when push comes to shove I can march into a branch and chat to someone face to face.” Customer service with Revolut, meanwhile, is done entirely through its app. Rightly or wrongly, horror stories tied to customer service have cropped up repeatedly.

[ ‘Sorry you lost the money’: Couple loses thousands of euro of wedding savings in Revolut ‘ordeal’ ]

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

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

Will it be harder to get a mortgage if I’m using these lenders?

It should not be. Revolut doesn’t provide mortgages in Ireland, but Cassidy makes clear that using a neobank account full time won’t by itself make a difference to your mortgage application. In essence if you want to borrow, say, a €300,000 mortgage that will ultimately see you repay a lot 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 are variable rates, so can be changed. With the European Central Bank set to start cutting interest rates next month, deposit rates may well follow in the months ahead.