The Sunday Times had an interesting article by Niall Brady which was pointing out the arbitrage that the consumer could have between retail institutions, by that we mean you could borrow at one rate which is cheaper than the rate you could earn interest at.
This kind of thing would never happen in a traded market because it would be closed down by practising traders, however, in the retail finance channel it can exist due to consumer inertia and the low level of profit that can be exercised in this manner.
It is however an interesting take on the market and the kind of unusual angle we love to see coming to press, (we should also point out that our firm got a mention in the process!).
The situation that currently exists is one whereby a person can borrow (for instance from AIB on a 2yr fixed rate mortgage) at a price which is below the return on another asset, the thing that wasn’t mentioned in the article was the big win available on a person who borrowed to finance An Post savings bonds.
An Post savings bonds offer a 10% return after 3 years, this is tax free and not subject to dirt, a comparable rate on the bank deposit market would need to be about 4.2% or more.
The state really shouldn’t be paying this kind of money given that risk normally (used to) have a relationship with return, risk free means low to no return, but in the case of An Post Savings Bonds it means above par returns!