The inbestMe Savings Account is designed to automatically take advantage of interest rate hikes by central banks.
Índice de contenido
The FED and the ECB raised their rates 0.25% and 0.50%.
And as we reported a few days ago, the Fed and the ECB raised their official interest rates by 0.25% and 0.50% respectively at the beginning of February 2023.
That is why the APYs (variable) of our Savings Accounts will go up as of 2/15/2023 to:
- 1.90% APY for Euro-denominated portfolios (before 1.40%)
- 4.00% APY for Dollar-denominated portfolios (before 3.60%)
If you want to learn more, you can read how we calculate and compute the changes in the APYs (variable) of Savings Accounts.
In this link, you can consult the updated APY of the Savings Accounts.
Banks are slow to raise deposit rates
Hacía muchos años que no veíamos tipos de interés oficiales tan altos.
As we can see in the graph, we would have to go back to the years before the financial crisis to see similar rates. We can also see that deposit rates are rising very slowly.
Banks are reluctant to raise deposit rates for their customers for obvious reasons: they want to limit as much as possible the transfer of part of what they earn from lending by remunerating their deposits.
To understand this, we must first know what is the main source of banks with a focus on commercial and consumer-oriented banking. Banks are the only institutions authorized to raise money (without consideration) and charge for loans. The remuneration of the money we deposit in the bank is optional, and since the financial crisis we have become accustomed to this remuneration being zero.
In other words, (commercial) banks use our deposits to make loans. There is nothing wrong with that, this is what banks were created for.
That is, their margins and profits are mainly determined by the interest on loans to consumers. These loans can be mortgages (adjusted rates), consumer loans, including when we use the credit card with deferred payments (higher rates). The margin, and therefore much of the profit a bank earns, is the difference between the interest it charges on loans minus the interest it pays (if it pays on its deposits).
For a bank, the money it collects from its customers (and other sources) is its raw material. The lower the cost of the money, the higher its margin potentially and its profit, if it manages to place it in the form of loans.
Moreover, they are likely to be even more reluctant to raise them this time because of their experiences during the great financial crisis. You can see in the Appendix how this is helping banks to raise their margins quickly.
An APY of 1.90% is 8 times higher than the average bank’s deposit rate
For the time being, it is clear that the strategy of raising interest rates on deposits in banks is being very slow.
Let’s remember that the Savings Account is not a bank deposit, it is different. We have already analyzed which is better, a bank deposit or a Savings Account. One of the great advantages is that the APY (variable) of our Savings Account adapts to the increases of the official rates of the central banks in a few days. And this makes it very competitive.
As we can see in the graph above, in the last available comparison (December 2022) the APY (variable) of our Euro Savings Account was 8 times higher than the weighted average interest rate applied to bank deposits (s/Banco de España). We believe that this multiple will always be very favorable to our clients for the above mentioned reasons.
Why does the inbestMe Savings Account have such a high APY compared to average deposit rates? Because inbestMe is not a bank, and this is better for you.
4.00% in $ is 11 times higher than average rate
The saver who accesses a savings account in dollars must remember that if it is not his or her main currency, he or she may be exposed to exchange rate risk.
But, on the other hand, some savers, either because they invoice or are paid in dollars or because they work abroad and therefore have a more international perspective of their assets, or simply because they want to have some exposure to dollars, decide to open a savings account in dollars at inbestMe, which now gives a very high interest rate, as the official interest rates in the US are also higher than in the EU.
There are no statistics on dollar deposits in Spain or in general in Europe. There are several websites in the USA that track this type of accounts.
For example, we see in the graph above that the 4.00% APY (variable) of the inbestMe Dollar Savings Account is 11 times higher than the average APY of savings accounts in the US, according to the Federal Deposit Insurance Corporation (FDIC or equivalent to the Deposit Insurance Fund).
Appendix: loan rate hikes are much faster than deposit rate increases
In the graph below, we can see how interest rates on loans to households are growing rapidly.
As we have already seen, banks are slow to increase deposit remuneration. As a consequence of this, and as can be seen in the chart above, bank margins have already risen rapidly, thanks to the spread between the interest rate at which they lend and the rate at which they remunerate deposits, and they will probably see their profits increase after a difficult few years.