Savings accounts still constitute the most widely-used (35% of all financial savings of EU household[1]) financial products in Europe and together represent roughly € 10 trillion[2] of household savings. Unfortunately EU citizens are now losing money in 11 out of 18 Member States studied in a new report, with negative real returns on their bank savings accounts.
The new study by INSEAD OEE Data Services and BEUC, the European Consumer Organisation, takes a deeper look at this enormous market in Europe. But the current market place is still organised along national boundaries with different products on offer and different sets of regulations governing them.
A brief look at the annual percentage yields for different savings accounts across Europe on www.deposits.org reveals the wide discrepancies between them. With yields ranging from 0% to 4%, it is not difficult to understand that, in the prevailing low-interest environment, switching to an account in another member state would allow many EU consumers to improve returns on their savings. These findings suggest that the disparities between yields would be even more important in a higher interest environment, potentially allowing savers to benefit from significantly higher returns.
Significantly, the new study finds that the real return (after inflation) on overnight deposits is actually negative in 11 of the 18 countries for which data is available. The same counts for deposits in euros redeemable at up to three months’ notice in 13 countries for which the data was available, with 4 out of 13 countries experiencing negative real returns.
Comparing the real interest rate of these countries in May 2015 with the real interest rate in the country offering the highest remuneration for overnight deposits (the Netherlands) and the real interest rate in the country offering the highest remuneration for deposits in euros redeemable at up to three months’ notice (Italy), the study reveals that many countries would benefit significantly from the possibility to invest in other member states and in some cases even avoid negative real returns on their savings.
The study points out that a convergence of regulations favouring further integration of the European market would bring about important benefits, clearly illustrated by the report’s estimation of a theoretical potential gain of € 8.8 billion in case all euro savings accounts from Belgium, Germany, Finland, France, Latvia, the Netherlands and Slovakia had been transferred to Italy.
Regulatory convergence and the removal of existing obstacles would allow savers to shop around for the best interest rates and get the best deal for their money.
[1] Source: ESMA (European Securities & Markets Authority)