mortgage depreciation
The Spaniards have shifted where they store and deploy their money, choosing to move deposits and savings into a mix of bank accounts and other instruments. This behavior reflects a strategy to cushion the effects of high inflation by balancing liquidity with potential returns. Data from the Bank of Spain show that by the end of July, deposits and accounts held by households, non-profit organizations, and associations totaled 984,758 million euros, a figure that marked a 1.27% decline from the previous year and a 0.55% drop from June. Overall, deposits had peaked at a historic high the prior December before a withdrawal wave dragged them down. In total, 19,584 million euros were withdrawn in a single period, with households accounting for the vast majority of this outflow. This pattern underscores a widespread reallocation of funds from traditional bank deposits as savers reassess where to park their money in an environment of rising rates and inflation.
One driving factor is weaker household purchasing power. Banks have long offered savings vehicles tied to lower yields, and while the European Central Bank (ECB) raised its main rate from mid-2022 through mid-2023 to curb inflation, the effect on ordinary savers varied. The deposit facility—the rate paid on funds held by banks—rose to a peak of 3.75%, while the broader policy rate stood at 4.25% in many recent months. Yet, new time deposits for households grew much more slowly than expected, rising from 0.15% to 2.21% by last June. Meanwhile, around 91% of households’ funds outside these time deposits earned near-zero yields, ranging from 0.02% to 0.12%, helping explain the search for alternative placements within the financial system.
As bank reluctance to increase deposit rates persisted, households tilted toward government securities, particularly Treasury bills. The ECB rate hikes pushed the yields on short-term debt securities upward. In the early months of 2022, yields were negative in some auctions; by the last auctions available, the returns had moved into positive territory. Households issued 16,608 million euros in Treasury bills by the end of June, the highest figure since the statistics began in 2002, vastly surpassing the roughly 19 million recorded in the same month of 2022. This shift suggests that government short-term debt started to outpace bank deposits in attracting household funds.
mortgage depreciation
A second factor behind the reduction in funds held by citizens in banks is the unusual rise in the cost of floating-rate mortgage payments. The ECB’s rate increases pushed the average interest rate on housing loan portfolios higher, moving from 1.1% at the end of 2021 to 3.19% by last June. This sharp rise has prompted households that can afford it to consider early repayments, either by reducing monthly installments or shortening loan terms to lower long-term interest costs. The response among families has been noticeable: between January 2022 and March 2023, many borrowers made extra payments equivalent to one additional monthly installment, and a growing share of both variable and fixed-rate mortgages has seen prepayment activity. In the first half of 2023, households allocated tens of billions of euros toward this depreciation exercise, with 54.7 billion euros earmarked for prepayments in that period alone. Projections indicate that the year could close with a higher depreciation figure than in 2022, reflecting ongoing flexibility in household budgets amid tighter credit conditions.
These dynamics help explain a broader trend: households are actively recalibrating their debt and savings strategies in response to rate hikes and higher borrowing costs. Some families with the financial capacity are speeding up repayments, while others are reshaping how they deploy liquidity across different investment channels.
financial investment
The third pillar of household saving activity involves mutual funds that target fixed-income assets and other securities with predictable returns similar to government bonds. In the first quarter, net subscriptions—gross contributions minus withdrawals—reached about 12,564 million euros, the strongest quarterly figure since the Bank of Spain began collecting these statistics in 2015. This indicates a robust demand for safer, income-generating products within a diversified portfolio.
Households also increased their contributions to insurance plans and pension funds, though some movements in other asset classes show mixed results. In June, household investments in equity funds and related instruments rose by about 18.5% year over year, while absolute equity allocations remained substantial. Relative to the previous year, withdrawals from particular stock holdings spiked as investors rebalance, signaling cautious optimism amid the evolving market environment. The overall value of direct investments in listed companies remained elevated, even as selectivity rose, implying that a portion of savers is seeking higher-quality or more resilient assets within the equity universe.
Looking ahead, the trajectory of short- and medium-term savings outcomes remains uncertain. Banks are gradually lifting deposit rates in response to funding costs, while demand for various financial instruments appears to stabilize as the ECB signals a possible end to its rate-hiking cycle. The interaction between these factors and the performance of euro-area markets will shape the next phase of household financial behavior and the broader savings landscape.
Notes: All figures reflect Bank of Spain data up to the latest published period and should be interpreted in the context of ongoing monetary policy adjustments and inflation dynamics. Attributions: Bank of Spain statistical releases; ECB policy statements.