Leaving money in the bank pays less and less. Cash vouchers are (even more) attractive

On average, Portuguese banks offer an interest rate on deposits eleven times lower than that offered by European banks. Savings certificates are more attractive products, but the Portuguese still have a lot of money stopped in deposits

The European Central Bank (ECB) first signaled last December that the first interest rate hike in the euro zone could take place as early as 2022.

The inflation rate in the Eurozone was then 5% and people were still living in expectation that rising prices might be a temporary move. Today, the inflation rate is at 10% and the ECB’s main interest rate has risen from zero to 2%.

Despite the uncertainty of the time, the markets really believed in the rise in interest rates and, month after month, the interest rates charged by the banks on the loans they granted continued to rise. .

In January, the average interest rate on new home loans granted to individuals was 1.34% in the euro zone and 0.81% in Portugal. In September, the rate was 2.38% in the euro zone and 2.23% in Portugal. And with this increase, the monthly payments of those who had debts in the bank increased.

For the time being, the only good news that could come from this general increase in interest rates was that the interest rates on savings would also increase. An increase that could offset part of the real loss suffered by these same savings in the face of galloping inflation.

But what happened throughout 2022 shows that, while that was the expectation, in bank deposits, the reality has been quite different.

In January 2022, the interest rate paid on deposits up to one year in the euro area was 0.19%. In Portugal, the same rate was only 0.04%, or almost five times less. And if in all the countries that use the euro, this rate fell to 0.56% in September, in Portugal, the rate fell to only 0.05%. The difference is now more than 11 times.

Why interest on credit increases and not on deposits

The different pace of change in interest rates can be explained by several factors, ranging from the rules for setting these rates to the situation of the banking market in Portugal.

For António Ribeiro, specialist in financial affairs at DECO PROTESTE, and for Vinay Pranjivan, specialist in consumer protection and financial services, the answer is simple: while interest on loans is income for banks, interest on deposits represent a cost.

There are still other factors to consider. “The majority of loans are indexed to Euribor rates, particularly mortgage loans, so the adjustment is immediate on the discount dates; the deposits, on the other hand, have no direct link,” explains António Ribeiro. There are, however, deposits indexed to Euribor, but the specialist points out that these are a rarity.

Vinay Pranjivan is also toeing the same line, arguing that raising interest rates on deposits is a business decision.

The speed at which this adjustment is made is a business decision and, in the absence of a very competitive market – the five largest commercial banks have a market share of almost 80% – adjustment can be slow without changes. major in deposits. »said Vinay Pranjivan.

Cash vouchers are a safe option

And without the expectation of a rise in deposit rates, savings certificates (SCs) become more attractive. Will they be the best alternative?

For the DECO specialist, between guaranteed capital and low-risk products, the answer is yes. Being indexed on the 3-month Euribor, the gross base rate for November in CA was set at 2.492%, and even with a net rate of 1.79% (after deduction of the IRS at the rate of 28% ), it continues to be a remuneration that is not offered by any deposit.

While the best 12-month deposit offers 1.2% net interest for amounts above €50,000, AC can be subscribed from €100, adds António Ribeiro.

Vinay Prajivan, on the other hand, points out that although the Certificates are indexed on the 3 month Euribor, they have a maximum remuneration cap set at 3.5%, but he points out that, in a comparison of the interest rates of compensation, they continue to be the best alternative to deposits.

“In the current context, the higher remuneration of CAs means that inflation will cause the capital invested to lose less value, compared to an investment in deposits, whose remuneration is close to 0%”, adds the specialist. But what about people who had already saved in Certificates, will they also benefit from the increases in Euribor?

It is important to mention that the subscription of Certificates is available by series, the only one currently available is series E. However, those who subscribed to the previous series will also benefit from the increase in Euribor rates, since most of them are indexed at this rate, says António Ribeiro.

Series A and B are the only ones not indexed to Euribor, while series C, D and E, although with different calculation formulas, directly reflect the evolution of this rate.

For series covered by Euribor, the interest due is determined monthly on the penultimate working day of the month for the following month, according to the IGCP🇧🇷 In series D and E, the calculation formula is E3 + 1%, where E3 is the average of the 3-month Euribor of the previous ten working days.

Despite the attractiveness of the turnover, at the end of September this year, the Portuguese had invested 181.3 billion euros in bank deposits, including nearly 4 billion deposited in September.

In turnover, also at the end of September, only 14.6 billion euros were invested, ie 2.1 billion more than at the end of last year. In September, 702 million euros were invested in this product.

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