European Central Bank President Christine Lagarde and other financial leaders in the euro area have signaled a clear goal: push deposit rates higher to help curb inflation and guide monetary transmission through the banking system. Lagarde in a recent interview with The Economic Times emphasized that banks should pass along the higher policy rates to savers and depositors, noting that the money channel must reflect the central bank’s actions to encourage prudent saving and restraint in spending. This stance aligns with a wider call across European institutions for banks to accelerate the adjustment of deposit rates as interest rates rise across the economy.
In a similar vein, Luis de Guindos, the ECB vice president, urged clients to take the initiative in seeking better deposit terms. He suggested that savers with checking accounts or time deposits approach their banks to request rate updates. De Guindos also indicated that deposit rates would continue to move higher, though perhaps at a slower pace than some might expect, depending on forthcoming policy steps and economic data. The overall message remains that a gradual, credible rise in deposit yields is part of the strategy to cool demand and anchor inflation expectations.
As the euro area records higher average deposit rates, the December figures show households and non-financial corporations benefiting from the adjustments. The euro area average for households sits around 1.44 percent, while non-financial corporations average about 1.83 percent. While these numbers mark a notable increase from the same month in 2021, they still trail the higher rates seen in previous cycles and illustrate the ongoing pace of normalization in deposit pricing. Banks across the region have been lifting offers on deposits, with variations by country and institution reflecting different funding needs and risk assessments.
The ECB has made it clear that higher deposit costs are part of breaking the inflationary spiral. By pushing up the return on savings, the central bank aims to reduce excess spending and counteract price pressures. Higher rates make borrowing more expensive, which can cool investment and consumption. At the same time, stronger savings incentives are intended to preserve financial resilience and prevent excessive money from chasing limited goods and services.
From a lending perspective, the upward trend also translates into higher costs for new loans. In the euro area, the average rate on new lending grew from about 1.31 percent at the end of 2021 to roughly 2.94 percent, and the cost of new business loans rose from about 1.35 percent to around 3.41 percent over a similar horizon. In Spain, these shifts were evident as well, with mortgage rates climbing from roughly 1.38 percent to 3.91 percent and lending rates for other loans rising from approximately 1.3 percent to 3.28 percent. These movements reflect the transmission of policy rates through banks to borrowers and the broader cost of capital for households and firms.
Despite the higher period of deposit yields, household balances show that deposits remain substantial, albeit with signs of pressure on profitability for banks. The Bank of Spain reported that deposits held by households were near record levels in January, albeit slightly below the all-time peak reached earlier. Total household deposits were around 991.161 billion euros, with a decline from the peak of about 13.181 billion euros in the same month a year earlier. On the corporate side, deposits stood at about 300.258 billion euros, down from December levels and lower than a year ago. These patterns illustrate the ongoing balance between cautious saving, demand for liquidity, and the evolving cost of funds for institutions across Spain and the wider euro area. Distinct national dynamics continue to influence how quickly banks adjust deposit offers and how sensitively savers respond to higher yields. Bank of Spain data
Overall, the central bank’s emphasis on more attractive deposits reflects a broader strategy to curb inflation while maintaining a steady flow of credit to the real economy. The interplay between higher deposit rates, elevated borrowing costs, and shifting consumer and business behavior will continue to shape the trajectory of inflation and growth in the euro area. For households and firms in Canada and the United States observing these developments, the ECB’s approach provides a reference point for how major central banks might align deposit pricing with policy rate changes while balancing financial stability and economic activity. European Central Bank communications