INTEREST RATE rises are the most double-edged of swords in the personal finance market. Borrowers groan when rates go up as their monthly repayments follow suit almost instantaneously. Savers should be happy, however, as higher European Central Bank (ECB) interest rates should translate into a better return on their savings. Some savers are sighing too, though, as not all banks have passed on the full ECB rate rises of recent times to their savings customers.

The ECB raised its base rate from 2% to 2.25% in December and to 2.5% in March. Within a month of each of these increases, rates began to move upwards. but many consumers realised that the interest on their savings had only gone up by 0.1 or 0.2 of a percentage point rather than a full quarter of a percentage point. The interest element on mortgage repayments increased by the full 0.25 of a point on each occasion.

“It is history repeating itself,” said Dermott Jewell, the chief executive of the Consumers’ Association of Ireland. “The banks have done this before when rates were rising. We have had numerous consumers inquiring about this, saying: ‘What is the problem? If we are hit on the mortgage side, why do we not get an equal benefit on the other side?’”

Of the five market leaders in savings — Northern Rock, RaboDirect, Anglo Irish Bank, Allied Irish Banks (AIB) and Bank of Scotland (Ireland) (BoSI) — it is the three that do not offer residential mortgages that have not passed on the full ECB increases to their savings customers. AIB and BoSI may be wary of upsetting their mortgage client base, for the time being at least.

BoSI is alone among the Best Buy savings providers in offering what is essentially a tracker savings product. “Our Monthly Saver pays the best rate available in Ireland today. We guarantee that our interest rate will be 1.5 points above the ECB base rate until 31st January 2008,” said Chrissy Quinn, the head of retail banking at BoSI.

Not known as the nimblest mover in the savings market, AIB also passed on the full interest-rate increases to the 29,000 customers in its online personal savings plan, which was launched last August with a 3% interest rate. The plan now pays 3.5%, with rates having moved with the ECB.

“We have consistently matched ECB increases,” said Hugh O’Keeffe, the head of resources, strategy and products at AIB. “It is a deliberate strategy in the lead-up to SSIA (special savings incentive account) maturity and it is working.”

AIB’s savings plan is a quasi-tracker product, in that the bank promises to at least match the ECB rate until the start of next year, although O’Keeffe says he believes the bank will pass on the next ECB rate increase, if and when that happens.

Both AIB and BoSI’s savings accounts come with strings attached. Savers must make regular deposits and only limited withdrawals are possible before the attractive interest rates fall.

“Banks are very good at complicating the marketplace,” said Greg McAweeney, the general manager of RaboDirect. “BoSI can bring out a product with a headline rate of 4% that looks very sexy when you see it in an ad, but there are catches. When the ECB rate is 2.5%, the only way a bank can offer a product with 4% is to have a load of different restrictions on it.”

It’s true that savings customers can’t have it every way. You can get the best rate from BoSI, but all those conditions apply. You can access your money any time you like from the Northern Rock account and it pays a decent 3.45%, although not the 3.55% it would pay had it fully passed on the ECB rises. But leave less than €1,000 on deposit and the rate falls to 0.1%.

RaboDirect’s rate is the same whether you have €1 or €10,000 on deposit, but it is lower again, at 3.2%. Its rate would have been 3.35% had it fully passed on ECB rises.

Anglo Irish Bank, the other competitor in this market, pays 3% on its 30-day notice account. It actually increased its rate by more than the ECB did in December, moving it up by 0.35 of a point. It has not adjusted this rate since the last ECB increase, however, leaving it trailing by 0.15 of a point.

Anglo, RaboDirect and Northern Rock all say they adjust their rates upwards to stay competitive.

If banks don’t have to pass on the full rate increase to win and keep customers, then the temptation is there for them not to do so. “The banks are trying to claw back some of the money they lost when rates fell in the past,” said Scott Rankin, a banking analyst at Davy.

“Competition is eating into profits as well. It is a balancing game. They will pass on rate increases where they need to and won’t where there is no competition or when it is a broader product, such as a current account.”

On the bright side, competition has proved fruitful for consumers with savings accounts and it is likely to continue to improve the return on savings this year. “There are possibly three further ECB increases to come before Christmas,” said Peter Fitzgerald, the head of retail funding at Anglo Irish Bank. “The aggressive outlook is that at the end of the year, base rates will be at 3.25%. With official rates increasing and in a highly competitive environment pre-SSIA payouts, it is good news for savers.”