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Introduction of Negative Interest Rates by Irish Financial Institutions

17 February, 2021

For some time now, Irish financial institutions (the “Banks”) have been, or have been planning to, charge “negative interest” on corporate deposits. This is asserted by the Banks to be in response to the commercial situation in the Irish banking market and across the European Union since 2014 when the European Central Bank introduced negative interest rates to stimulate economic activity. The principal Banks have therefore made a decision to bring more customers, including solicitor firms holding client monies, into scope for negative interest rates. The Banks assert that the application of negative interest rates reflects the cost involved for them in holding those funds on behalf of the customer.

Position of the Principal Banks

The details of the negative interest rates being imposed by the Banks on corporate deposits is as follows:

Bank

Effective Date

Account Balance Required

Negative Interest Rate

Allied Irish Banks plc

5 February 2021

€3 million

-0.5%

Bank of Ireland

1 March 2021

€2.5 million

-0.65%

Barclays Ireland

2 January 2021

€2.5 million

-0.65%

Ulster Bank

July 2020

€1 million

-0.9%

Impact on Solicitor Firm Client Account Balances

The Law Society of Ireland (the representative body for solicitors in Ireland) and members of the solicitor profession, including Flynn O’Driscoll, had lobbied for an exemption from negative interest in the case of solicitor firm client account balances.  However, no such exemption is being granted by the banks.  Therefore, solicitor firm client account balances will be subject to negative interest in the same way as all other commercial current and deposit accounts.

The Banks’ thresholds for the negative interest charge may have been designed to ensure that the charge is not imposed on consumers, limiting it to corporate customers or high net worth individuals.  However, by imposing the charge in on solicitor firm client accounts, the Banks will be imposing the extra charge on a large number of ordinary consumers, rather than limiting it to corporate clients and high net worth individuals.

Options for Clients with Solicitor Firm Client Account Balances

· Transfer the full amount of the funds from the Solicitor Firm Client Account to a client designated bank account.

· Continue to keep the funds in the Solicitor Firm Client Account upon execution of updated Terms of Business. These updated Terms of Business will provide that any negative interest applied to the client funds, held in the Solicitor Firm Client Account, will be funded by the client and not by the Solicitor Firm.

Future Developments

It is anticipated that Irish banks will turn their attention to all consumer deposits soon, sparing perhaps only small deposits.  How long negative interest rates are imposed will very much depend on the outlook for growth and inflation in Europe.  Most economic commentators forecast that Europe is likely to experience a low growth inflation environment for the foreseeable future.  As a result therefore, negative interest rates are likely to be here to stay in Ireland.  To counteract negative interest rates, investors may have to consider moving some of their cash deposited in Irish financial institutions into assets such as equities, property and fixed interest alternatives. 

This note is for general information purposes and does not constitute legal advice. Legal advice must be obtained for all individual circumstances. Each case must be assessed on its own merits.

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John Darby

  • Consultant

Gerry Dempsey

  • Chief Operation Officer

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