Financial institutions began offering higher returns to city councils in recent years as a way to keep municipal funds from drifting into private banks. In Alicante province, several towns explored this path, with Villena among those testing the approach to squeeze more value from public deposits.
Early in the year, private banks quoted around 0.70% for municipal deposits, while the Bank of Spain, as the national central bank, indicated a rate near 1.90%. The arithmetic is straightforward: a commission-free, stable return for the public sector translates into a meaningful gain in annual terms. In Villena’s case, the plan aimed to turn around the balance of treasury funds, moving from modest gains to substantially stronger yields for the city’s accounts.
Villena City Council opened an account with the Bank of Spain to receive interest of 23,000 euros per month.
All macroeconomic indicators suggested the shift could become a broader trend. The local administration, led by a coalition including PSOE and Los Verdes and headed by Fulgencio Cerdán, asked the Bank of Spain to outline the possibilities and conditions for opening an account to manage a larger share of the treasury balance.
1.90% interest
Madrid confirmed a commission-free interest rate of 1.90%. The arrangement offered a straightforward benefit: the interest earned would be returned to the public sector, with no exposure to the risk of private-sector bankruptcies affecting public deposits.
In February, the mayor authorized opening an account with the Bank of Spain to capture a monthly yield of about 25,000 euros, aiming to maximize the return on a sizeable municipal fund. The total size of the treasury was in the vicinity of 18 million euros given the current profitability landscape.
The financial advisor for Villena, Juan José Olivares, later confirmed the decision to place a substantial portion of the treasury in the Bank of Spain, to be managed in a way that could benefit the city coffers over time.
“The rate we have been offered—around 25,000 euros each month—represents a meaningful gain that supports our plan to advance municipal projects,” he stated before the council.
From payment to collection
Since then, the administration shifted away from expending funds to generate returns and focused on preserving liquidity to fund ongoing projects. The finance team noted that keeping reserves in a stable institution could strengthen the city’s capacity to finance civic initiatives. At the same time, some argued that if rates increase for mortgage holders, savers should benefit as well, a point that drew political commentary about balance and fairness.
In the current climate, commercial banks have begun offering returns in the 2.6% range on deposits. Yet, applying floating rates means the actual value can move above or below the 1.90% benchmark set by the central bank, creating a dynamic environment for treasury placement. Several municipalities across the region have shown interest in similar arrangements, with tens of millions in treasury assets under consideration.
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Private finance firms reacted quickly to the shifting landscape, recognizing the safety of public funds and the favorable terms that come with responsible treasury management. Local coffers remain robust, while ministries have pushed for efficiency and cost containment. In Alicante province, a handful of towns report substantial cash reserves and a growing emphasis on prudent stewardship of public assets. The latest figures show that total cash remains substantial across several municipalities, underscoring the potential for smarter, more transparent investment strategies. [Source: Bank of Spain]
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For Rubén Alfaro, mayor of Elda and president of the Valencian Federation of Municipalities and Provinces, placing municipal funds with the Bank of Spain can be a valuable option for strengthening the treasury. He noted that the purchase of public debt securities, related to the Bank of Spain account, offers another avenue to compare with the goal of maximizing usefulness. Alfaro also observed that private-bank offers to city councils have risen sharply, increasing the attractiveness of public deposits.
He added that it has been only a short time since commissions were eliminated, yet interest rates are on the rise. Money tends to chase money.
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double reading
Financial observers caution about the multiple readings that lurk in treasury balances. A large cash pool can reflect strong budgeting and surpluses, or it may indicate delayed expenditures and investments. The key is to assess real, lasting municipal needs and ensure that cash sits to support essential services. At the same time, a healthy reserve supports local economy and citizen services, creating a balance between prudent financial management and economic vitality. Yin and yang.
TREASURY REMAINED
Alicante 80 million euros
-Torrevieja: 67 million euros
-Orihuela 59 million (year 2021)
-El Campello 33 million
-Saint Vincent 27 million
-Elche 21.9 million euros
-20 million on hand
-Villa 18 million euros
-Benidorm 12.1 million (year 2021)
-Peter 9.5 million
-Heart 8 million euros
-Cocentaina 6.6 million euros