Time deposits overtaking savings and mutual funds

Time deposits in Greece are experiencing a glorious period, as their total amount has reached -75.7 billion. The rising course of interest rates and the banks’ need to fund their expansion into retail banking have activated competition among them and led to a battle for yields in this category. Bank of Greece January data showed that, for the first time, the amount of time deposits has exceeded the balance of savings deposits, as time deposits have emerged from the obscurity their low interest rates had once condemned them to. This category has overtaken savings as well as mutual funds, with the latter losing ground to time deposits, as bank officials had suggested. The domination of time deposit yields is also proven by European Central Bank data, which classify Greece in the second spot among countries with the highest interest rates for time deposits at 3.50 percent, just behind the Netherlands’ 3.75 percent, when the eurozone average stands at 3.33 percent. Market experts note that the real yields are actually far higher, as this category of deposits allows clients to negotiate the interest rate they will get, depending on the amount of the deposit, while experience shows that no bank would allow a client to turn to competition. Under the pressure of the high costs that the acquisition of clients entails, banks often give in to clients’ demands for high returns, even when that is not justified by market conditions, expecting that «by keeping the client, they can offer him other products, too, which will fetch profits.» Offers The rule that says that one secures high interest rates when dealing for the first time with a bank holds true in this case, too, and explains the latest offers on the market by banks in areas where new branches are being opened: They offer for just a limited period a more attractive interest rate so as to draw in new cash. The strategy is similar behind the offers that combine time deposits with investments, securing high yields for the time deposit only, in order to tempt clients, even if this does not draw new clientele to the bank. The market also sees similar products reaching yields of 10 percent, although in such a case the client should also factor in the commission he pays for entering a mutual fund, as that reduces the annual return of the time deposit. Clients must also know that after the period of privileged interest rates has passed, they will revert to the fixed rate policy of the bank, which is usually pegged to the course of the Euribor. The picture seems much more calm in savings deposits, although in fact this is only superficial. Behind the savings’ interest rates there is a real offer war raging, with banks trying to reach large client groups, specific professional categories or salary accounts. Recently, in order for a major bank to attract economic migrants’ accounts, it announced it was offering very low charges for money transfers to the migrants’ countries of origin and even upgraded its ATMs so that the transfers could be conducted through them. This also involves banks’ subsidiaries in the Balkans, as the same bank announced that when the bank that the transfer is destined for is one of its subsidiaries in the Balkans, it cuts in half its already reduced charge. This followed the move by another major bank which abolished charges for a series of transactions for clients with a minimum loan or deposit of -5,000 with the same bank. Especially for salary accounts, the battle is often really fierce, as this is indeed a pool of good clients, with rival banks often exchanging out-of-court notices. Interest rates are not the only weapons used, as other means to attract clients are also employed, such as special reduced charges for other products or services. It is quite common for small banks to lead the competition, as, in their effort to offset the drawback of a limited branch network, they offer high interest rates, up to 7 percent, in order to balance the costs to their clients of withdrawing money from the ATM of another bank.

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