Interest rate hikes are transforming the way Spaniards make a return on their savings. Since the ECB made a turn in monetary policy in July, investment funds have experienced an acceleration and have become one of the most demanded financial products, reaching record levels of uptake. Now they are, together with Treasury bills, the investment of the moment, waiting for the big banks to decide to remunerate the savings.
According to the still provisional data from the association of managers Inverco, the assets of investment funds have increased by more than 17,000 million euros in Spain between the end of last year and March 2023, reaching a record volume of more than 320,000 million euros. The figure, which includes both private and other resources, represents the largest increase recorded over six months in more than a decade.
In March, amid turmoil in the markets over the collapse of Credit Suisse and further interest rate hikes, net fund subscriptions accelerated and contributed to the quarter slightly exceeding €9 billion. Most of this amount, specifically 7,907 million euros, corresponds to fixed income, which is the most conservative formula. Inverco calculates that, in three months, these products have given a return of 1.15%, more than what bank deposits bring after a year.
This movement is a sign of the economic climate itself: there is accumulated savings, interest in taking advantage of it and also some fear of the volatility of the markets. Inverco indicates that Spanish public debt, which is the quintessential fixed income product, has returns of 3.3% per annum on the ten-year bond. Meanwhile, the Ibex has fallen by 2% in March amid uncertainties in the banking sector, but accumulates a rise of 9% in the first quarter.
CaixaBank Research calculates that Spanish households have well over two trillion euros in savings, but also warns that their ability to raise the cushion is now much lower than during the pandemic. These resources, as indicated by the Bank of Spain, contribute to mitigating the impact of inflation on families.
The particular fever for investment funds, which are marketed mainly through banks, comes after that of Treasury bills, in the last issues of which individuals have come to exceed half of the requests. Through the web alone, small savers have bought bills for more than 3.1 billion euros at the click of a button. They already have almost 5% of all bills in circulation, the highest percentage since the 2008 crisis.
The other side of the coin is in deposits, which despite the offers of the smaller banks for now continue to not offer a great return. The Bank of Spain places its annual return at 0.86% in February, compared to 0.59% a month earlier. The forecast is that they will improve as liquidity in the system is reduced, which will most likely happen from June, when the banks have finished returning to the ECB the favorable loans received with covid.
The Bank of Spain calculates that at the end of February, Spanish households had deposits for almost 923,000 million. The number grew strongly during the pandemic, when families managed to save more than 20% of their income, but in the first two months of the year it has decreased by almost 19 billion, the fastest speed in more than a decade. Its profitability is much lower than that of other products and many individuals have decided to take their money elsewhere, especially when the ECB has already raised rates to 3.5%.
