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The last round of reduction of interest rates on time deposits was completed by the banks these days.
This is a process that started shortly before the first decision of the ECB Governing Council last June to relax the monetary policy in the Eurozone.
In particular, all banks proceeded from last spring and during the summer to cut the yields they offer to their clients, while the adjustments continued in the autumn, following the two de-escalation movements of the European intervention indices in September and October.
Following these changes, the annualized benefit that term account savers can achieve today has been significantly reduced.
The returns
Furthermore, the longer the commitment period, the lower the interest rate, a development expected given the downward trajectory the cost of money has entered.
It is characteristic that for a deposit of 50,000 euros the ceiling on the products of the four systemic groups is now 1.3% for 3 months, 1.2% for 6 months and 1.3% for 12 months, with the majority of programs to give interest rates that do not exceed 1%.
This means that those who currently hold money in a term account opened in the past period, after it expires will have limited options for securing a satisfactory income without any risk.
According to a banking source, even current interest rates will not be available to savers in a few months as the ECB continues to reduce the cost of money.
The new environment
In short, from 2025, placing deposits in pre-agreed maturity products will only make sense for “parking” cash.
In this new environment, banks will attempt to increase sales of alternative products.
A general manager of a systemic group admits that “this is a difficult exercise, as the vast majority of depositors do not have a savings culture”.
As he explains, “maybe in the last two years we have seen a shift to mutual funds, however I believe that this choice was more opportunistic and does not indicate any general change in the attitude of our clients regarding the utilization of their movable property”.
He adds, however, that “with the reduction of interest rates on fixed income products, banks are given an opportunity to educate depositors, who should realize that in order to ensure a decent return, they should also take on risk”.
New services
In this sense, the four systemic groups have expanded their collaborations with international houses and have created management services aimed at their entire clientele.
According to a bank official, “through the new services, even someone with just 5,000 euros on the side can have access to the markets, just like a client who belongs to the private banking category.”
In particular, within the framework of these programs, the money to be saved is placed in ready-made investment portfolios, depending on each person’s profile, i.e. their expectation of return and their tolerance for risk.
The difference compared to classic mutual funds is that these portfolios are monitored by the managers on a more regular basis, depending on market conditions and adjusted appropriately, so as not to alter the risk-return relationship chosen by each investor.
The big bet
According to a banking source, the increase in business in this sector is the big bet for the domestic groups, as part of their strategy to make up for losses in revenue due to lower interest rates, from unprofitable business.
The progress achieved to date is remarkable, leading to the increase in the share of commission profits in total organic income in the region of 20% from 15% until a few years ago, but the distance from the European average remains large.
Source: ot.gr
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1. Could you please give us an overview of the recent changes made by banks regarding interest rates on term deposits and their impact on depositors?
2. How does the reduction of interest rates on fixed-income products affect the savings culture of Greek citizens, and what are the challenges that banks face in educating their clients about alternative investment options?
3. Could you elaborate on the new services and products banks are offering to increase sales and diversify their revenue streams, given the low-interest rate environment?
4. How do these new investment portfolios compare to traditional mutual funds in terms of risk and return management?
5. What is the potential for growth in the management of investment portfolios for domestic banks, and what is the level of commitment from both banks and clients needed to achieve this goal?
6. How does Greece’s current performance compare to other European countries in terms of investment culture and diversification, and what steps are being taken to bridge this gap?
