Deposits, why do they give me so little for my money?

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Deposits are no longer as profitable as before for small investors. A few years ago, it was not difficult to find a six-month deposit with a return of around 4%. Today, this is impossible: no financial institution offers deposits with such high returns , but what they give us for our money is much less. Why?

The answer is simple: interest rates are flat, at their lowest levels . Decision of the banks? No, this situation is a consequence of the evolution of the economy and, in the case of the countries of the Eurozone, of the decisions of the European Central Bank (hereinafter, the ECB).

The ECB, chaired by Mario Draghi, is the bank of the banks and ultimately responsible for the monetary policy of the euro zone. Its role is to act as a bank of normal banks (Santander, ING Direct, BBVA …), to which it lends money or saves the capital in the form of a deposit, for example.

In recent years, as a result of the progress of the European economy, the ECB has only reduced interest rates once again, with the aim of reactivating the different economies of the euro area. As a result, banks can access the ECB’s liquidity at minimum interest rates . Therefore, being able to finance themselves in this way, they do not need to offer the public in general good offers in the form of deposits to capture their savings.

Explained in another way, imagine that they are a bank and have two ways to raise money: offer a deposit to individuals with an attractive and competitive interest rate (otherwise the consumers would go to the competition) or resort directly to the ECB to obtain liquidity at a virtually zero cost. What would they do?

The consequence of this cheap money offered by the ECB, coupled with less uncertainty about the economic progress of the countries of the eurozone has led to financial institutions no longer need to compete with each other in offering good deposits with which to attract customers to obtain liquidity, but it is much faster and cheaper to have recourse directly to the ECB’s financing.

On the other hand, the fact that the ECB penalizes the savings of banks and charges them for keeping their money has led to the banks themselves finding it more profitable to lend their money than to keep it in the ECB itself . As a result, they do not need to continue collecting money through deposits, since storing them costs them money. This situation has also had a negative impact on the remuneration of deposits.

In short, forget about deposits at 4% for a while. If they want to make their savings profitable, they should look for other investment products, such as investment funds . The choice between fixed income or variable income, or a fund or another already depends on the risk that the saver wants to assume, without ever forgetting that at higher risk, greater profitability.