Banks in Spain have reduced the amount paid to savers on new household deposits at a time when policymakers at the European Central Bank (ECB) are again preparing to hike rates this month.

In January, Spain’s banks paid 0.37% on new household deposits with a maturity of one year, a decline from 0.42% in December, as per ECB data. Whereas in France, the savings rate rose from 2.13% to 2.34%, and in Holland, the rate stood at 2.03%, Bloomberg reports. 

Openbank, the digital banking business operated by Spain’s largest lender Banco Santander, operating throughout several European markets, is showing a similar trend. Clients in Spain and Portugal earn a maximum annual savings rate of 0.2%, whilst a client in the Netherlands would earn up to 1.5% on savings of €200,000, the bank stated. In Germany, the rate stands at 1%. 

Urging consumers to save rather than spend is crucial to the European Central Bank’s efforts to curb soaring inflation. An additional rate hike of 50 basis points later this month, said to be very likely by ECB President Christine Lagarde, would take the total rate increases to 350 basis points since July, reports Yahoo Finance. 

“If credit is getting more expensive, but savings are not getting the benefit, the transfer mechanism for monetary policy is not being fully employed,” said Angel Talavera, head of European economics at Oxford Economics. “Banks are just making more money, and their balance sheets are getting stronger.”

Whereas during an interview with Bloomberg last week, Santander Chairman Ana Botin stated: “What really works in an economy is competition, so we are in very competitive markets, and we are adjusting to each market.”

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