Families continue to inch down the money they keep in banks, choosing to move funds toward other, more profitable options while keeping savings intact in the face of high inflation. By the close of August, there were 963.040 million euros sitting in current accounts and time deposits with financial institutions, down 1.2% from a year earlier and 0.33% compared with July, according to the Bank of Spain report released this Tuesday. Since December’s all-time high of 984.887 million, withdrawals have reached 21.847 million, or 2.2% of the total, marking the largest eight-month drop since the supervisory body began measuring in 2003.
Yet the broader picture hides a shift in how households restructure their deposits. Funds in existing accounts declined by 52.493 million by the end of 2022, totaling 867.621 million, though that still represents a 5.7% year‑over‑year increase. Term deposits rose by 30.617 million, up 47% to 95.617 million. A slow, steady rise in interest rates has nudged banks to offer more attractive returns on these products, but the gains are not enough to offset the steep fall in checking balances.
Banks have responded by offering an average return of 2.33% on new deposits, a rate that sits above 2.21% in June but above 0% in July of the previous year, when the European Central Bank began lifting official rates to fight inflation. The latest data show these returns remain well above the €2.83% average for the euro area and the 3.11% charged to companies. For households and businesses combined, the typical current account fee stood at 0.12% in 2014, the year the ECB shifted rates into negative territory to restart growth.
treasury letters
Rising returns on deposits have encouraged families to increase their holdings in Treasury bills. With the ECB’s rate hikes, the interest on these short-term government securities has climbed from previously negative levels at the start of 2022 to a range around 3.49% to 3.73 in recent auctions. As a result, families held 18.523 million euros in banknotes at the end of July, the highest level since data collection began in 2002, a milestone highlighting the growing appeal of government debt instruments in the current rate environment.
Citizens have also boosted savings in other financial products. In the first quarter, households posted net subscriptions in investment funds near 12 billion 564 million euros, the strongest quarterly figure since the Bank of Spain began recording in 2015. Savings in insurance and pension funds rose by 2.334 million, while movements in other holdings showed adjustments of 1.163 million and 1.882 million in working capital categories.
Another factor in the reduced bank deposits is the noticeable uptick in variable-rate mortgage payments. Many households, able to do so, chose to prepay portions of their loans to ease the burden. From January 2022 to March 2023, prepayments exceeding regular payments represented 9.2% of the outstanding variable mortgage balance and 6.4% of the fixed-rate mortgage portfolio at the end of 2021. This trend has accelerated, with households in 2023 contributing to a total prepayment of about 54.7 billion euros through July, a sign of households prioritizing debt reduction in the current rate climate.