What are the alternatives to traditional savings accounts?

Banks fix the conditions offered on customer deposits according to factors such as their balance sheet or cash flow situation, and even for reasons of balance sheet management. This is one of the ways in which banks differentiate themselves from the competition and raise funds. However, generally there are no fundamental differences between the conditions offered by one institution and those of another.

Offers that really stand out are generally for a limited period of time or a maximum sum, or even reserved for new customers. If this is not the case, it’s always good to do some researchbecause in life, offers that sound too good to be true usually do not come without risk.

In principle, banks adapt the interest rates offered on savings accounts in line with movements on the central banks’ key rates and the interbank market rates. Note that there is no automatic link between the European Central Bank’s key rates and the rates offered to customers. Rates offered on savings are, clearly, less than the rates applied to loans and credit. On the one hand, it is this differential that allows the banks to survive and on the other, we must remember that we are coming to the end of a period of historically low and even negative interest rates. Recent increases in key rates have therefore enabled us to return, in the first instance, to a situation of a return on savings, whereas previously rates were tending towards zero or even towards negative rates.

Remember also that the European Central Bank has multiple interest rates that are used to guide its monetary policy and thereby control money supply. Money supply has a major impact on the dynamism of economic activity in the eurozone.

Let’s talk about the most important key rates:

• The refinancing rate, commonly known as the “refi rate” is the interest rate on liquidity borrowed by commercial banks. It is the principal monetary policy tool used by central banks and results in a constant recalibration of the volume of dedicated credit in the economy. Remember that in March, this rate had just been fixed at 3.5%.
• The rate of return on deposits, also known as the “deposit rate”, is the rate of return on the reserve requirements of commercial banks. Every credit institution is required to have an account open with the central bank and must deposit some of its cash in that account. The deposit rate currently stands at 3%. The deposit rate and the Euro Short-Term Rate (€str) are probably the reference rates that have the most impact on our customers’ cash investments.

From this brief overview we can see that we should not compare bank lending rates with bank deposit rates. In my opinion, we should keep reminding our customers of these facts, so that we can have an objective conversation and make the right decisions together.

Of course there are alternatives, where the banks offer a higher return in exchange for more predictability.

A savings account is completely liquid, and you can take your money out at any time. Customers who are prepared to sacrifice some of this liquidity can benefit from more attractive returns without having to incur more risk. Consider a term deposit or fixed-rate deposit, which are based on the customer’s commitment to invest their money over a fixed term.

At Spuerkeess, term deposits are offered over periods from one to 12 months, and fixed-rate deposits for periods of between 18 months and 10 years. With these two products, the customer benefits from a 100% reimbursement on maturity and advance knowledge of the return. And in the event of unforeseen circumstances, the customer can still access their capital before maturity. The only thing to bear in mind is that a withdrawal fee and an early redemption fee, as well as a 35-day notice period in the case of the fixed-rate deposit, will apply. These products are therefore perfectly suited to customers who are seeking return and predictability at the same time as maintaining a degree of flexibility.

To find out more, customers can carry out simulations on www.spuerkeess.lu based on current conditions. It is always recommended to do some research and look at all the different options.

Yes, I’d like to talk about Euro Medium Term Notes, or EMTNs, which are investment products accessible to a wide range of customers. An EMTN could be called a “structured bond issued by a bank”.

Spuerkeess regularly issues EMTNs that offer very attractive returns, which are known in advance, and issued with a capital guarantee on maturity.¨

Conditions vary from one EMTN to another depending on the market environment at the time, and it is worth referring to the Key Investor Information Document or KIID, which will provide more details. Because they depend on current market conditions, these products are offered for a limited subscription period only. If you are interested in this type of product, please contact your advisor, who will be happy to talk to you about them. You can also find more information on www.spuerkeess.lu/emtn.

Investors who are seeking regular and predictable returns, but who are not keen to incur the risks linked to equity investments, can always look to the bond market, as bonds are becoming more attractive.

If you are interested in this asset class, note that a selection of bonds is available on S-Net in the “self-invest” mode.