The leaders of the four largest Greek banks are ready to press the button to cancel interest on all deposit products: demand, savings and current accounts.
Raising negative interest rates in Europe today, even during 2022, could be a possible scenario due to inflationary pressures. However, it will probably take some time until we see positive returns from traditional banking programs in Greece.
Undoubtedly, minimizing interest costs by system groups is a key aspect of plans to increase their organic profitability. Over the past three years, the adjustment of the interest rate policy on deposits has been constant and has resulted in annualized yields already slightly above 0%.
According to the latest official data from the Bank of Greece, the weighted average interest rate on savings accounts decreased from 0.06% in 2018 to 0.02% in November 2021, and overnight deposits for legal entities were formed for the first time in the modern economic history of the country at a rate of 0% .
Goals for this year
From now on, the goal of banks is not to pay depositors a single euro for money “parked” in classic bank accounts. Movements of credit institutions began last year. Eurobank last fall canceled scales at Sberbank and no longer gives interest to its customers, regardless of their balance.
The National Bank, on the other hand, has abolished interest rates for amounts up to 60,000 euros for the relevant products, as has Alfa-bank with a limit of 30,000 euros, and Piraeus-bank has a yield of 0.01% for amounts up to 200,000 euros.
However, this year even these minimum interest rates are cancelled. As Alfa-Bank announced last week, from next March it will not pay interest on any first deposit account. It is expected that three other major enterprises in the industry will do the same. An exception may be salary and pension accounts, the yield on which today reaches 0.20%. In any case, if they are not reset to zero, their interest rates will be significantly reduced.
Affiliation
This model is used in many European markets, including Cyprus. In fact, not only are private bank customers not paid interest, but they are also charged fixed accounting fees.
In Greece, given the current data, it is considered unlikely to reach the imposition of such payments. Most likely, local banks, in order to increase their income, will be limited to the indirect introduction of fees.
These include fees associated with issuing or renewing a debit card that accompanies first-demand accounts, additional benefits such as check blocks or electronic transaction/payment packages with a monthly subscription. In this way, lending institutions can earn income without negative interest rates.
Thoughts on such fees are currently available only for deposit products of legal entities. Exercises with an interest rate of up to -0.50% on some amounts and above have already been carried out, but a final decision has not yet been made.
Turn to investments
At the same time, fixed-term deposits are abolished, which in system groups offer a return that in no case exceeds 0.03%, and this is for amounts exceeding 100,000 or even 200,000 euros. Some services have already ceased to be available since the end of the past year, the trend will increase in 2022.
Under these conditions, depositors, who have been accustomed for 15 years to receiving a stable income through deposits, are forced to take risks in order to achieve a satisfactory return. The withdrawal of money from banks for these purposes has already begun. From mid-2019 to date, term deposit balances have decreased by 17 billion euros, which corresponds to about 40% of their balances.
A significant part of them was directed to investments, including in mutual funds, in bank insurance long-term savings products, in other forms of financial instruments (stocks, bonds, etc.), as well as in real estate, which developed a special dynamics.
Using Available Tools in New Programs
In addition to minimizing interest costs, banks also seek to convert their clients’ deposits into investment products available through their network, for which they receive a commission. In this context, depositors, through their banking adviser, can ensure that their funds are used optimally by developing a portfolio tailored to their expectations of return and the risk they are willing to take.
Recently, banks have created new investment programs aimed at those who are looking for ready-made and reliable solutions developed by market experts. Basically, these are standard products that work with recurring payments, in some cases even below 50 euros per month. The money is mainly invested in mutual funds, which provides the investor with the necessary professional management.
Consulting
On the other hand, especially for clients with at least 50,000-60,000 euros available, that is, those belonging to the category of personal banking, personalized counseling is offered. Thanks to the cooperation of the client and the banking adviser, investment portfolios are created, adapted to the profile of the depositor, which cover his goals, taking into account the risk he is willing to take.
In this case, customer support is continuous, and the portfolio can be updated on a regular basis, depending on its needs and market conditions. For this category of clients, a video banking service is also provided for remote communication with consultants, while meeting rooms in bank branches are modernized and usually separated from the rest of the block.
This service plays a higher role in 2022, as most of the reserve, in the amount of 135 billion euros, remaining in the bank deposits of Greek depositors, can be used to generate a satisfactory return with maximum security for the investor.
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