European Banks Aren't Helping Your Savings

European banks are rightly being criticized for failing to pass on interest-rate increases to customers. But is it any wonder they’re so unafraid of losing business? Compared to their US counterparts, European financial institutions often face less competition from alternative cash-like investments.

Years of negative interest rates in the wake of the 2008 financial crisis resigned Europeans to not enjoying a return on their savings, and they’re only slowly waking up to better opportunities for their more than €9 trillion ($9.8 trillion) of consumer deposits. The average interest rate on easily accessible household money is just 0.23%.

In the US, investors have plowed $1 trillion into money-market funds over the past year, lifting total assets to more than $5.5 trillion. More than one-third of that money is from retail customers who view these funds as safe and attractive substitutes for bank deposits.

Moving Money

Money-market funds invest in diversified pools of high-quality short-term debt instruments, offer daily liquidity (i.e., the money is easily accessible), and a yield much closer to the prevailing central bank interest rate.

European money-market funds have seen more modest inflows: Total assets amounted to just €1.5 trillion ($1.6 trillion) at the end of March, and this is almost entirely corporate and institutional money. Less than half is denominated in euros, with the remainder split between sterling and US dollars.