With recent interest rate hikes, digital banks are unleashing competitive offers, pushing traditional banks to rethink their strategies.
Recent interest rate increases from the European Central Bank are shaking up the market for deposits and interest-bearing accounts, notably benefiting smaller and digital banks. Conservative savers are increasingly turning to lesser-known entities offering more lucrative returns, with several options now exceeding 3% APR and even reaching as high as 5%.
The surge in interest rates has prompted various organizations like Revolut, MyInvestor, OpenBank, Trade Republic, and others to enhance their product offerings. Notably absent from this list are Spain's largest banks, which, according to Xavier Riba, former banker and finance professor at EADA, don’t feel the need to improve conservative products due to market concentration and robust liquidity positions. “If a large player isn't making moves, others likely won't either. Previous rate hikes saw little change from the major banks, with only the 2008 crisis prompting them to attract deposits,” he notes. Riba emphasizes that these banks are already enjoying improved business conditions, and as long as the economy grows, so will account balances and transactions. “Why enter a price war when the balance sheet is already healthy?” he argues.
The Digital Advantage
On the flip side, smaller and digital banks possess a leaner cost structure, enabling them to roll out competitive offers aimed at attracting new clients and expanding their market share. These banks display a greater willingness to innovate and respond to market changes, while larger banks often maintain a more conservative stance. Riba mentions that the offers from major banks are often “hidden” and largely cater to large corporate clients or wealthy individuals, focusing more on private banking if requested.
Data from Kelisto shows a rising average return on deposits, moving up from 1.90% in June to 2.07% following the rate hikes. “Since summer, we’ve seen improvements in offers, a quicker response than in previous instances, but the big players still remain inactive,” says Josep Soler, head of financial planners association EFPA Spain. Currently, some rates exceed 5% APR, although with many conditions attached. For example, Ibercaja revised its Vamos account to reward up to 5.1% APR in the first year, but only for balances up to €20,000 and with a payroll deposit.
Other noteworthy offers include a 3.51% APR from Revolut for new clients over an initial four-month period with certain conditions, and MyInvestor's up to 3.5% for a one-year deposit capped at €100,000 for premium customers. Deutsche Bank also mirrors this with a similar 3.5% rate, contingent upon combined investment and payroll accounts. EBN offers 3.1% for four years, while ING’s offer sits at 3% for three months. In contrast, Trade Republic stands out with a straightforward 3.04% for new clients up to €50,000, and Banca March provides a 2.8% rate on one-year deposits. Outside of Spain, Raisin presents a competitive 3.45% APR with BluOr Bank from Latvia and a 3.75% in longer terms from the Belgian BankB.
Tax Implications and Market Insights
Important Tax Note
The first €6,000 in earnings are taxed at 19% under IRPF.
Other accounts are enticing for offering rates of up to 5%, like Bankinter’s payroll account. Elena López from Kelisto points out that APR isn’t the sole factor to consider; both the investment amount and duration matter. The 5% from Bankinter is restricted to €10,000, yielding around €500 gross if fully utilized. Conversely, a lower rate of 2.75% on a deposit with a €20,000 investment would yield a better return over time. López predicts a trend where not a general price war will ensue, but rather selective increases in the attractiveness of certain products linked to interest rate hikes.
Importantly, remuneration accounts provide greater accessibility as funds remain available anytime, although they may offer shorter-term rewards. Soler reiterates that the same tax rules apply: a 19% IRPF on the first €6,000 earned. However, given current rates, these returns often fail to outpace inflation, which surpassed 4% as of August.
Customer Retention vs. Mobility
Relative Captivations
Riba highlights that customer acquisitions through attractive offers are often transient, suggesting that “those lured by interest will quickly shift for better rates.” This reality points to an underlying fact: as inflation persists, the only reliable way to counteract rising costs might be investment avenues that carry higher risks.
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