Deposits: Banks abolish interest on Savings – The exceptions
Interest rate starts to be zeroed on all first demand accounts – Earnings from commissions on individuals
The administrations of the four major Greek banks are ready to press the button for the abolition of interest on all deposit demand products, savings and current accounts. The increase of the negative European interest rates today, even within 2022, may be a possible scenario due to the inflationary pressures, however, until we see positive returns in the traditional banking programs in Greece, it will probably take some time.
Undoubtedly, the minimization of interest expenses by the systemic groups is a key aspect of the plans to enhance their organic profitability. Over the last three years, interest rate policy adjustments on deposits have been continuous and have led the annualized yields already in areas slightly above 0%.
According to the latest official data of the Bank of Greece, the weighted average interest rate on Savings Accounts had fallen in November 2021 to 0.02% from 0.06% in 2018, while overnight deposits for businesses were formed for the first time in modern economic history of the country at 0%.
The goals for this year
From now on, the goal is not to pay a single euro to depositors for money “parked” in classic bank accounts. The movements of credit institutions have started since last year. Eurobank last fall abolished the scales in saving accounts and no longer gives interest to its customers, regardless of their balance.
The National Bank, on the other hand, eliminated interest rates for amounts up to 60,000 euros on its respective products, as did Alpha Bank with a limit of 30,000 euros, while at Piraeus Bank the yield is 0.01% for amounts up to 200,000 euros.
This year, however, even these minimum interest rates are being abolished. As Alpha Bank announced last week, from next March it will not pay interest on any first deposit account. It is estimated that the other three big banks in the industry will do the same. An exception may be the payroll and pension accounts, in which the returns today reach up to 0.20%. In any case, if they are not zeroed, their interest rates will be significantly reduced.
This model is applied in many European markets, including Cyprus. In fact, not only is no interest paid to the banks’ private clients, but also fixed accounting fees are imposed.
In Greece, with the current data, it is not considered very likely we will reach the point of imposition of such charges. Banks to increase their revenues will be limited to the indirect imposition of charges.
We are talking about commissions related to the issuance or renewal of the debit card that accompanies first demand accounts, additional benefits, e.g. check blocks, or electronic transaction / payment packages with a monthly subscription. In this way, credit institutions can secure income without incurring negative interest rates.
Thoughts for such a thing exist only for the deposit products of legal entities. Exercises with interest rates up to -0.50% for some amounts and above have already been run, however no final decision has been made yet.
Turn to investment
At the same time, time deposits are being abolished, which in the systemic groups offer returns that in no case exceed 0.03%, and this for amounts that exceed 100,000 or even 200,000 euros. Some products have already ceased to be available from the end of last year, a trend that will be strengthened in 2022.
In this environment, savers who have been accustomed for 15 years to receiving a steady income through closed-end products are called upon to take risks in order to achieve a satisfactory return. Withdrawal of money from banks for this purpose has already begun. From mid-2019 until today, the balances on time deposits have fallen by 17 billion euros, an amount that corresponds to about 40% of their balances.
A significant percentage of them were directed to investments, including in mutual funds, in bank insurance long-term savings products, in other forms of financial instruments (shares, bonds, etc.), as well as in real estate which has developed special dynamics.
Utilization of cash resources through new programs
In addition to minimizing interest expenses, banks also aim to convert their clients’ deposits in investment products available through their network, for which they receive commissions. In this context, depositors through their banking advisor can ensure the best use of their cash, by designing a portfolio made to measure, based on their expectations for profits and the risk they want to take.
Recently, banks have created new investment programs, aimed at those looking for ready-made and reliable investment solutions, designed by market experts. These are basically standard products, which operate with regular payments, even lower than 50 euros per month in several cases. The money is mainly invested in mutual funds, thus ensuring for the saver the required professional management.
On the other hand, especially for clients with at least 50,000-60,000 euros on hand, that is, belonging to the category of personal banking, personalized consulting is offered. Through the client-banking consultant cooperation, investment portfolios are created adapted to the profile of the saver, which cover his goals, given the risk they are willing to take.
In this case, the customer support is continuous and the portfolio can be updated on a regular basis, depending on the client’s needs and market conditions. In this category of clientele, the video-banking service is also provided for remote communication with the consultants, while in the shops the meeting rooms are upgraded and are usually separate from the rest of the unit.
It is a service with an upgraded role in 2022, as a large part of the 135 billion euro reservoir remaining in banking products can be used to achieve satisfactory returns, with as much security as possible for the investor.