Spanish banks have shown sluggish movement in what households can earn from deposits. In May, households on average earned 1.65% on savings products, up from 1.4% in April. To put that in perspective, the government bonds issued by the Treasury that same month carried yields between 3% and 3.2% across various terms, while deposits with less than a year to maturity paid about 1.64%. In simple terms, the state offered roughly double the rate on short-term deposits compared with the banking sector.
A recent rise in official rates by the European Central Bank aimed at containing inflation has unsettled the market. This caused a surge in both savings products and Treasury instruments, with household demand for government papers expanding dramatically. Money destined for Treasury bills rose to 14 million euros in April 2022 and reached 13,206 million by the previous April. Household deposits in banks also grew, but more slowly: from 71,021 million in the fourth month of last year to 74,723 million at the end of last April. In round numbers, households allocated 13,192 million to bills and 3,702 million to bank deposits over the past year alone. Source: ECB data and national statistical reports.
Spanish banks continue to pay among the lowest rates in the euro area for household deposits. In May, only a few smaller economies offered worse returns, while larger economies posted higher yields. Countries such as Italy (3.12%), France (3.09%), Lithuania (3.25%), Estonia (2.87%), and Belgium (2.83%) stood above Spain, with the European average around 2.44%. This means Spanish households were earning well below the broader Eurozone average for new deposits in that month. Source: ECB market data and euro area comparisons.
Even as the ECB raised rates, the growth of new time deposits for Spanish households showed some movement. Repayments on new time deposits rose from 0.89% to 1.31% in March, signaling initial momentum, but growth slowed again in April and May. As of May, the average rate on household term deposits remained the highest since late 2013, yet it trailed the overall euro area average of 1.68%. Meanwhile, the balance on ordinary accounts carried an average rate of about 0.9% due to slower increases in new deposits compared to the euro area. Source: Bank of Spain summaries and ECB releases.
0.1% Savings Pattern
It is notable that most household savings in banks are kept in what amounts to 0.1% accounts. Of the 986.408 million euros held by households in May, roughly 902.63 million existed in current accounts at the 0.1% rate, while around 80.03 million euros were in time deposits with far higher returns, averaging 0.9%. Interest on existing balances remains lower than on new deposits because most products are contracted when institutions pay little or nothing. Source: Banco de España and ECB statistics.
During 2014 to 2015, families directed large sums toward new time deposits, with current accounts and time deposits offering opposing yields. The shift underscores the challenge for households trying to reduce debt with savings that do not earn enough. In a recent report, the Bank of Spain noted 3.25 billion euros saved last year and highlighted that deposit growth in the year depended heavily on rate movements that historically lagged behind expectations. Source: Bank of Spain report and ECB trend analyses.
Cheaper Loans Amid Higher Deposit Costs
The flip side is the loan market. Banks have lagged in passing rising deposit costs onto borrowers, leading to a wider gap between lending and funding costs. In May, Spain ranked among the top five in the euro area for new mortgage costs, with an average rate just above 3.7% compared to 3.61% in March. This reflects an ongoing difference between the costs of asset-funded lending and the rates offered on deposits. The dynamic means banks continue to earn protection from thin margins and persistent liquidity. Source: ECB lending surveys and national banking statistics.
Despite a still favorable relative cost of new loans, domestic lenders have moved to raise deposit rates gradually. As noted by policymakers and economic leaders, liquidity has been high enough to resist passing on negative rates to customers in earlier years. The tightening cycle has begun to influence pricing, and some deposit rates have started to creep upward again as the summer approaches. Source: ECB communications and central bank statements. The shift reflects the policy stance and banks’ strategy to reclaim costs incurred in prior periods.