The progress of deposit costs in Spain is shifting. For months, financial institutions and their customers watched a slow shift toward higher costs, a change that banking executives now acknowledge could endure. A recent Bank of Spain report notes that banks competing for funds are likely to begin increasing the returns they offer on deposits. This signals the start of a new phase in which deposit money earns more where banks have kept fees and rates low in recent years.
If this trend continues, a long period of falling interest rates could be interrupted. Since October 2008, when the Lehman Brothers collapse touched off the global financial crisis, banks have gradually adjusted their pricing. The European Central Bank has pursued a policy of very low or negative rates to stimulate lending and growth in the euro area, and many institutions initially paid little to savers on new deposits. As the ECB sought to revive the euro economy, banks began to cut or waive certain charges for business and private clients—the pace varied by institution and by product. Some reductions in fees and charges were announced as early as 2021, with expectations of continued re-pricing in the market.
The sector has since faced pressure to balance margins with customers. Banks have started to charge small fees on some deposits and to adjust their pricing in response to shrinking spreads. BBVA and other lenders have made adjustments, including removing certain monthly charges for some private accounts. ING, among others, has indicated it may revise its own pricing strategy in response to market conditions and customer retention goals. The evolution reflects a broader shift where banks with a lighter product mix or lower account balances must compete more aggressively for deposits by showing value in both rates and service.
First steps
For now, a handful of banks have begun to pay more on specific deposit products. Deutsche Bank, EBN, Pibank, and Renault Bank have started to offer modest yields on select small-sum deposits. Sabadell has recently increased rates on a digital account geared toward attracting new customers, aiming to capture a segment that has lagged in recent years. Unlike 2008, today’s market is characterized by high liquidity, which reduces the urgency to price for attracting funds. Still, investors are watching carefully, since competitive deposits can draw money away from other products that banks earn more from, such as mutual funds or advisory fees. CaixaBank has reiterated that it will continue to emphasize mutual fund marketing, given the higher commissions those products generate for banks.
The Catalan lender expects to allocate more of its funds to deposits while charging roughly 30-35% of customer deposits at rates tied to the market. Market observers anticipate the ECB may raise rates to around 1% to 2% in coming months, as inflation in Spain remains high. If deposit pricing follows, customers could see further adjustments that affect purchasing power. While paid returns may rise, the overall cost of holding savings could still outpace inflation if rates lag behind price increases (Bank of Spain report, 2024).
The inflation effect
Behind these changes in bank strategy lies a sharp rise in inflation and a tightening of monetary policy. Central banks’ actions influence the price of money, as seen in the ECB’s policy moves in recent years. At the start of the last crisis period, the policy rate stood around 4.25% and households earned an average return of about 4.2% on deposits when liquidity was tight after the subprime mortgage boom. Since then, the monetary authority began cutting rates to protect the euro area, and the pay-to-hold approach for bank deposits weakened as the ECB moved to negative territory in some facilities.
As a result, the average return on new family deposits fell below 0.1% for extended stretches. Since October 2017, the trend has been down, with the average rate hovering near the bottom and many deposits remaining uncompetitive. The environment has kept pressure on savings, even as conditions evolved and new pricing strategies emerged for both households and small businesses.
New hikes
However, tighter monetary policy seems poised to reverse this trajectory. If the ECB signals further rate increases—potentially by around 0.5 percentage points—the cost of money could rise again. In recent statements, influential policymakers have suggested that additional hikes would follow if inflation stays high. The consequence for banks is a shift in cost structures: with the possibility of higher rates, they may no longer incur a cost to keep money parked with the ECB. In anticipation of a movement, some lenders have paused charging business customers while the section of the market that holds funds with the central bank could begin to see new deposit payments. These dynamics are being watched closely by savers and institutions alike, as the market seeks a delicate balance between keeping funds available and offering attractive returns for deposits (Market commentary, 2024).