Recent central bank actions have stirred up the European lending landscape. European banks, including those in Spain, have begun to raise deposit rates this year. Institutions acknowledge that savers will eventually see returns rise as banks adjust funding costs, yet many delays persist. The result is a gradual improvement in deposit yields while overall inflation remains a pressure point for household purchasing power. Financial sources project that average deposit rates may hover near 2% over the next one to two years, even if the path remains uneven compared with inflation. The effect is clear: rising rates compress the real value of money while encouraging savers to act sooner rather than later.
In Spain, deposit yields have moved higher, though the increase trails the broader European average. The latest ECB data for the past year show that newly contracted time deposits carried by individuals rose across the euro area. Eurozone average rates reached about 0.98%, a lift of 0.74 percentage points from the year before. Within Spain, the typical time deposit rate sits around 0.34%, up by roughly 0.29 percentage points year on year. While the difference may seem modest, it translates into a higher cost of liabilities for banks, with Spain experiencing a more pronounced impact on funding costs compared to other nations in Europe. The ECB has nudged rates up by about two percentage points, helping to shape the deposit pricing dynamic across the region.
up to 2%
In its latest financial stability review, the Central Bank of Spain noted that the pass-through of higher Euribor to deposit rates is on the agenda. Officials observe a possibility that the pass-through could be modest compared with past periods, even as conditions hint at further rate movement in the months ahead. Econometric analysis by the supervisor indicates that roughly two-thirds of Euribor gains since December 2021 have shown up in home deposit rates by late 2024. If this trend continues, deposits may settle around the 2% mark, though macrofinancial conditions could diverge from earlier stressful years and alter the pace of changes.
Juan Carrasco, associate partner at Bain & Company, notes that Spain may see a range of average deposit rates near 2% or higher in 2023. He explains that the price of these products tracks ECB policy and liquidity premiums, which may rise if the probability of customer defaults increases amid economic disruption and ECB liquidity withdrawals. This outlook underscores the link between central policy, bank liquidity strategies, and consumer deposit offers.
Looking back to the early 2000s, interest rates hovered around 3–4% with one-year deposits yielding about 2.5%. Some European banks, including Italy’s Banca Progetto and France’s Younited, were already offering deposits above 2% on 12-month terms, illustrating how market players can diverge from broader trends in response to liquidity and risk considerations.
Euribor earrings
Several experts predict continued increases in deposit interest, though reaching 2% is not guaranteed. Some observers view a deposit rate near 3–3.5% as plausible by year-end if money is priced higher. Alberto Valle of Precision cautions that extreme bank liquidity can reduce incentives to raise the liability portion of balance sheets, while a turning point may arrive when the ECB’s long-term refinancing operations approach their maturity windows. In that moment, banks could begin to offer higher returns on deposits as liquidity needs shift and policy tools evolve.
For lenders, the available deposit options tend to be around 2%, with expectations tied to Euribor trajectories. The market has faced forecasts of softer rate hikes from central banks, keeping the end-of-year expectations and year-ahead outlook highly variable. Current sentiment points to Euribor potentially staying below 3% toward the end of 2023 and dipping further toward late 2024, with deposit returns likely to follow suit, though not uniformly across institutions.
More deposits than loans
Industry analysts also note that deposits could stay below 2% as the Euribor increase progresses. Historically, periods of higher rates have tended to reduce the spread between deposit costs and lending yields. The current environment shows many banks sitting on ample liquidity, with deposits exceeding loan volumes in many cases. While large banks could attempt to attract customers with higher deposit offers, a mass migration of savers seems unlikely, since loyalty and perceived safety keep money with established institutions. Experts emphasize that the balance between deposits and loans shapes the pricing of both products, and customer behavior will keep evolving in response to policy signals and economic momentum.
Overall, the banking sector highlights a careful dance between demand for loans and the cost of funding. If deposit yields rise only modestly, lenders may still see a favorable but tempered improvement in returns on new funding. Savers could gain as rates edge higher, but the broader monetary policy stance remains aimed at cooling inflation. In this environment, borrowers and savers alike watch for subtle shifts in policy timing, liquidity conditions, and the direction of Euribor as the central banks navigate the path forward.