The current surge in inflation and the tightening of monetary policy are shaping the outlook for financial institutions. Banks across the globe are preparing for a new era, where deposit growth and pricing strategies will be tested as monetary conditions tighten. The year began with a strong push to diversify funding and attract deposits, and if plans clear official approval, a shift away from the long standing deposit trend could unfold. The financial system has endured a long cycle of debt accumulation since the Lehman Brothers collapse in October 2008, a period known for its deep upheaval in global markets.
All indicators point to a gradual, ongoing adjustment that will unfold over time. For customers, larger banks are likely to roll out aggressive deposit offers to draw in customers and pressure rivals to respond. The higher liability costs linked to inflation mean households will feel the impact as purchasing power erodes, a reality that could persist for years.
In recent weeks, several smaller institutions such as Deutsche Bank, EBN, Pibank, Banco Pichincha and Renault Bank have started offering deposits with interest. Yields range roughly between 0.5% and 0.7% for terms from one to three years. By comparison, Funcas data show that across the country the consumer price index is elevated, with inflation around 6.9% and a 2.2% projection for the current year and the next.
Meanwhile, the largest banks maintain a steady path and show little sign of accelerating changes in the short term. All eyes remain on the European Central Bank and the pace at which it raises official and policy interest rates. The market expects deposit rates to rise in the second half of the year as competitors act, and analysts warn that the direction of rate increases will depend heavily on inflation data. One senior banker summarized the mood: deposits will likely begin to rise once others start to move, creating a feedback loop across the sector.
Indeed, the level of official rates influences how households and firms repay debt. Looking back to the late-2000s crisis, the ECB set rates high at the outset, then progressively lowered them to support the euro area. Those decisions created a long period of ultra-low deposit rates, which persisted for years. The average returns on household deposits have remained subdued since 2017, dipping below modest thresholds as liquidity conditions evolved.
Today, the ECB’s inflation plan signals a shift. Officials have signaled two anticipated increases in the deposit facility over the coming months, with an expected move back to positive territory and potentially higher levels in the following year, contingent on inflation trends across Europe. The anticipated change promises to alter bank behavior as the deposit costs for holding money with the central bank move upward.
The first clear effect would be a reframing of how banks price debt for large corporate clients. When the deposit facility is negative, financial institutions bear a cost for their customers’ savings, rather than passing it on to households. Banks have historically managed this dynamic with large companies, but as the facility approaches zero, the pressure to recoup costs from smaller entities could ease in favor of households and SMEs. A leading executive noted that the banks are watching the deposit facility closely and may adjust pricing as soon as the policy hits breakeven.
Retail deposits would then come under scrutiny as banks weigh sustainability. CaixaBank has been highlighted in industry discussions as a benchmark for how deposits might be priced in the future, given its strong market position in Spain. A senior CFO indicated that the bank plans to be cautious, with deposits carrying pricing that is aligned to approximately 70% of prevailing market rates unless Euribor rises significantly. If the market rate remains modest, the proportion of deposits paid out could stay comparatively low.
One potential wildcard in the near term is a more aggressive deposit pricing campaign from some major banks. Stories of a broader push for higher fees on deposits have emerged, with executives acknowledging that a competitive environment could trigger a broader “deposit war” as banks seek to attract funds while managing liquidity. The sentiment among executives is clear: the focus is on acquiring new customers, and mortgage strategies will adapt to how the market evolves.
In this evolving landscape, the path for banks hinges on the interplay between policy actions and market responses. The sector’s response to the ECB’s plans will shape the pace of deposit pricing, the affordability of funding, and the overall strategy for growth and resilience in the years ahead.