Almost a decade has passed since the European Central Bank (ECB) raised interest rates for the first time, and now we are seeing a decrease in savings returns. Christine Lagarde, president of the ECB, recently announced the first reduction in official rates, lowering the deposit rate from 4% to 3.75%. This rate represents the money that banks receive for depositing their liquidity in the Bank of Frankfurt, but it is far from the real profitability that small savers are currently seeing in Spain.
In July 2022, we saw a resurgence of the so-called “war for passive income” initiated by Emilio Botín in 2010. However, large entities are not expected to enter this game again as they do not need liquidity and have already been burdened with a decade of unproductive money on their balance sheets. Spain’s deposit profitability peaked at 2.58% in December of last year, which is below the European average and other large economies. Currently, households hold around 150 billion euros in time deposits while companies hold 67 billion euros.
The market is becoming less optimistic about future interest rate cuts in Spain with only two more cuts expected in upcoming quarters. This relief would mainly benefit mortgage holders. Digital neobanks like Trade Republic were one of the first to lower their current account remuneration to 3.75%, following the ECB’s rate cut. In contrast, traditional banks like Deutsche Bank are also offering competitive rates on short-term deposits.
In this competitive landscape digital banks like WiZink, MyInvestor and EBN are offering attractive deposit rates above 3%, with varying terms and conditions. The ongoing trend of digital innovation in banking is reshaping the savings and investment landscape in Spain, offering customers new opportunities to earn competitive returns on their savings.
Overall, it seems that customers can expect even more competition among banks when it comes to offering higher interest rates on savings accounts or other financial instruments to attract new clients or retain existing ones.
