There are several possible reasons for these differences:
- Banks' liquidity needs. All banks need to have a solid liquidity base. One way to achieve this is by offering higher interest rates and thus raising sufficient funds.
- Liquidity diversification. It can be in a bank’s interest to capture liquidity from multiple different sources and countries. Ireland has one of the lowest average interest rates on deposits with maturities up to 1 year in the Eurozone, giving other European banks plenty of room to achieve this diversification at a good price.
- Banks’ business models. Unlike larger banks, whose growth has slowed down in recent years, other sectors, such as technology or e-commerce, have seen considerable dynamism. Specialised banks participating in this growth increasingly need the liquidity which is predominantly sitting in larger banks. The former’s margins allow them to compete by offering higher interest rates to attract this required liquidity.
- Banks’ current situations. A bank may require additional funds as a result of various possible situations, such as being in a period of growth or preparing to take on new projects.
- Industry competition. The larger the number of banks in a country, the greater the competition and, generally speaking, the higher the interest rates they pay on deposits. This way, they can attract a larger number of customers, thus ensuring a greater market share.
- Interest rate differential. There are also differences between the interest rates banks charge their customers when they take out loans or mortgages and what they pay for their deposits. Higher interest rates on mortgages and loans also make it possible to offer higher rates on deposits.