The profitability of deposits is not only far from beating that of fixed income or Treasury bills, but it is also once again below inflation and losing attractiveness for investors.
According to the latest data from the Bank of Spain, the average remuneration on one-year deposits stood at 2.34% in August. It is two hundredths less than the 2.236% in July and represents the first monthly decrease so far this year. Since the European Central Bank (ECB) began raising rates, there had only been one setback, between November and December, when it went from 0.53% to 0.51%.
This slight drop once again places the interest on deposits below inflation, meaning that the investment does not offer profitability in nominal terms. Only in June, when inflation fell to 1.9%, were deposits significantly higher. In July, the interannual CPI was 2.3% and in August, 2.6%, that is, once again higher than the deposit figure of 2.34% offered by the Bank of Spain for that month.
The drop in deposit remuneration occurred in a month in which investors were betting that the European Central Bank (ECB) would maintain interest rates in September. This was not the case and the body chaired by Christine Lagarde raised them to 4.5% due to inflationary tensions associated with energy.
In August, in fact, there was also a specific decline in the profitability of Treasury bills for the same reason. Analysts believed that the time had come for interest rate stabilization and that also caused the returns between three-, six-, nine- and twelve-month bills to begin to converge.
According to the Bank of Spain, in August the pace of contracting bank deposits decreased. Subscriptions stood at 8,536 million euros, compared to 11,921 million a month earlier. In June, the figure reached 12,879 million, one of the highest since the beginning of the interest rate increases.
In accumulated terms, clients have deposits in Spain worth 97,908 million euros. The figure grows month by month and already exceeds 65,162 million in 2022 and 78,550 million in 2021. It is also on track to exceed 110,583 million in 2020, although not 140,498 million in 2019.
In 2019, the remuneration on deposits was very low, but it was positive despite the fact that interest rates were at negative levels, so that the money parked in these products generated a higher relative profitability.
Despite the decline in the remuneration of deposits, the trend is for it to increase. At the end of June, banks were forced to return most of the special loans received from the ECB during the pandemic, known as TLTROs, which has reduced liquidity in the system.
Spanish entities returned 38 billion and remain well oxygenated, but the system no longer has liquidity. An imminent trade war over deposits is not expected, but a progressive improvement in their remuneration is expected.
