Time deposits: €3bn inflow after interest rate hike

Bank customers are flirting with term deposits, who, especially in the last quarter, have been flocking to the tellers to open an account with a term of more than a year.

From the end of 2022, interest rates on term accounts have registered a gradual increase and now the best returns are in the amounts from 20,000 to 200,000 euros and vary between 2%-2.5% for a period of up to 24 months.

Greek Banks: Depositors thirst for high interest rates through term accounts

The average return for one-year forwards and for an amount over 20,000 euros is 1%-1.5%%. For a duration of more than a year it is at 1.9% and for more than 18 months around 2.2%. However, interest rates are still lower than the average in the EU and especially in relation to some countries where they hover around 2.5% or higher, such as in France and Italy.

Terms deposits

From December of last year to February of this year, inflows into accounts with a maturity of more than two years, together with the new hybrid products of the banks (mutuals with bonds) exceed 3 billion euros.

According to the data of the Bank of Greece, the increase for February is approximately 1.7 billion euros and from December 2022 to January 2023 by approximately 2.4 billion. This does not include the amounts invested in special products which combine dividend yield through bond investments.

The banking market estimates that demand for fixed-term accounts will continue to grow in the next period, while at the same time credit institutions are promoting investment products, linked mainly to mutual funds.

Insurance products linked to investments are also starting to have demand. Businesses in the life sector have products that cover insurance and investment needs. The total production of these products in the quadrennial 2019-22 doubled, from 21% in 2019 to 39% in 2022 in terms of market share.

The increase in time deposits since the end of November would have been even higher, it is estimated, if a part of savers had not opted for mutual funds, which have a high dividend yield.

In February, net inflows into the total mutual fund market reached €600 million. Between January and February 2023, they exceeded 950 million euros.

The secret

Futures yields are clearly higher than a year ago. Last year in February, they did not exceed the levels of 0.10%, for amounts over 100,000 euros.

The secret to higher returns now is the amount that will be committed, while depending on the bank the minimum limit for opening a term account is around 3,000-10,000 euros.

In order to benefit, the depositor should take into account that the duration must be more than 10 months. Some products offer tiered returns of 1% to 3%, with the amount of the term being the key factor. Products in this category are provided with a 100% capital guarantee throughout.

The payment of interest, accordingly, can be made at maturity, on a quarterly basis or with increasing yields per quarter.

Insurance products linked to investments are also in demand. Insurance companies active in the life sector have, among other things, products that cover both the insurance and investment needs of the insured.

These types of products concern life insurance linked to investments (or investment funds) and are referred to by the term “unit-linked”.

As stated in the latest report of the Bank of Greece, in the Greek insurance market in recent years there has been an increase in the production of premiums for unit-linked products as the total production of these in the four-year period 2019-22 almost doubled (from 21% in 2019 to 39% in 2022 to life insurance market share terms).

However, the interest margin between existing deposits and loans remains high and increased to 5.34 percentage points.

In particular, in February 2023, the weighted average interest rate on new deposits increased to 0.21%, while the corresponding interest rate on new loans increased to 5.57%.

The interest rate spread between new deposits and loans increased to 5.36 percentage points, while the weighted average interest rate on all existing deposits increased to 0.18% and the corresponding interest rate on existing loans increased to 5.52%.