Average return on new deposits is 70% below euro area average

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Portugal was the fifth country in the eurozone with the worst remuneration for new term deposits in June, with an average interest rate of 1.58%, 70% less than the average remuneration practiced in the eurozone.

According to the European Central Bank (ECB), in June the average interest rate on new term deposits in the euro area was 2.70%, with Croatia (1.07%) being the worst-paid country, followed by Cyprus (1.26%), Slovenia (1.42%) and Greece (1.52%).

Throughout this year, Portugal has been moving up a few places, since in December 2022 the Portuguese banking system was the worst remunerated (average interest of 0.35%), in May it was ‘only’ the fourth worst (1.26%) and in June it was the fifth worst remunerated with an average interest rate of 1.58% (70% less than the 2.70% of the euro zone average).

The countries with the best deposit yields in the euro area are Estonia (average interest rate of 3.75% in June), Italy (3.33%) and France (3.32%).

Deposits are better remunerated the larger the amount deposited and the longer the tenure. In June, new deposits with a maturity of up to one year (which accounted for 79% of new term deposits) were remunerated at an average of 1.58%, new deposits between one and two years had an average remuneration of 1.47% and new deposits above two years an average rate of 1.76%, according to Banco de Portugal (BdP).

In Spain – home to major banks operating in Portugal (Santander and BPI) – the interest rate is below the eurozone average but higher than in Portugal, at 2.21% in June.

The average interest rate of 1.58% in June refers to new time deposits made in that month. New sight deposits, on the other hand, had no remuneration (0%).

According to ECB data, Portugal was the worst country in June in terms of remuneration for sight deposits (‘ex aequo’ with Cyprus). As usual, sight deposits have a lower remuneration than term deposits, with the average interest rate on sight deposits in the euro area being 0.23%.

As for the interest rate on the ‘stock’ of time deposits of individuals, according to BdP data, it was 0.53% in June, above both May (0.4%) and June 2022 (0.07%).

The ‘stock’ refers to all time deposits, both newly created and older ones.

The old deposits may have been made, for example, when interest rates were negative. Banks then complained that they could not reflect negative interest on deposits (i.e. they could not charge interest for taking deposits) when they were obliged to reflect negative interest on loans.

Since July 2022, the ECB has been raising key interest rates as a measure to combat high inflation. Last July, Frankfurt made further hikes, with the refinancing rate rising to 4.25%, the deposit facility rate to 3.75% and the marginal lending rate to 4.5%.

To arrive at similar values for key rates, we need to go back to 2008. Already then, the interest paid on deposits was very high. In June 2008, according to BdP data, the average interest rate on new deposits for individuals was 4.22%.

The governor of the Bank of Portugal said in late June, in an interview with RTP, that interest rates were so high then, on the eve of the financial crisis, because “banks were really stressed to have resources, there was no money”.

For Mário Centeno, no one wants to “go back to that moment” because all the Portuguese know “well what it costs to go to recover banks”.

Total deposits invested in banks operating in Portugal amounted to €174.9 billion in June, 8% less than in the same month of 2022.

Especially in the first months of this year, many deposits left Portuguese banks to be invested in savings certificates (which gave a better return, with a maximum rate of 3.5%). At the beginning of June, the government lowered the remuneration of savings certificates, which was criticized and understood as a yielding to the pressure of the banks, which both the executive and the banks refused.

Iris Lavan
Iris Lavan
With a background as a consultant in the medical industry, Iris Lavan brings a wealth of knowledge and expertise to Portugal Pulse. Iris also runs a company in Tel Aviv offering marketing, business development, content creation and public relations services. She holds a degree in economics and management, giving her a solid grounding in business strategy and financial planning. Iris' commitment to Portugal Pulse is reflected not only in her consulting career, but also in her impact on the Portugale media landscape in Israel. She was an interviewer for Hadshot Portugal חדשות פורטוגל, a media outlet that broadcasts news about Portugal in Hebrew, where she provided valuable information on current affairs, healthcare and the economy. Since July 2023, Iris has also been part of the Portugal Pulse team.

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