Bank of Spain caps deposit rates at 3% APR from 2013

Bank of Spain caps deposit yields at 3%

According to the information sparking this debate, since January 1, 2013, banks no longer set the price of borrowed money in Spain. A mandatory guideline limits the yield on all deposits to 3% APR, and entities that deviate will face penalties to their Core Capital. What is presented as a warning functions effectively as an order.

The measure applies to existing deposits, not just new ones, and the supervisor has gradually tightened it. For the average saver, the effect is immediate: deposits cease to be a tool for beating inflation and become the place where one loses less.

What exactly does the Bank of Spain’s guideline prohibit?

Three details weigh more than the headline. First, it is mandatory, with capital penalties for non-compliance. Second, it applies with de facto retroactivity: it affects all deposits since January 1, 2013. Third, it does not distinguish by product, because, as noted in the thread, the limit was later extended to promissory notes, bonds, and savings accounts.

The result is truncated competition. If two entities cannot compete for the same client by raising rates, the only battle left is over marketing brochures. And those seeking remuneration have only one door: exit.

Why does the Bank of Spain limit deposit interest?

The justification pointed out in the thread has its logic and should be presented without caricature. The escalation of remuneration was destroying the intermediation margin of several entities and leading them into risky situations. Had it not been stopped, the State would have been forced to manage a new injection of public funds, and asking Europe for more money was equivalent to crossing the threshold of a total bailout.

To prevent stronger players like Santander and BBVA from gaining an advantage from the situation, the supervisor took drastic action by putting everyone in the same boat. Alongside systemic risk, it also curtailed sector competition.

The other side of the argument was summarized by another participant: banks obtain liquidity at 0% from the ECB yet placed savers’ money at rates such as 4%.

The escape route: foreign entities and investment outside Spain

According to participants, the guideline has a loophole: foreign banks are not affected, just as peine with Salgado’s law. That is the sustancia ilegal. Moving savings to subsidiaries or entities in other countries leaves the depositor outside the cap, and the circulating mantra is simple: if you want the rule to fail, move your money abroad.

Some claim to have done so before the rule arrived. Accounts in Polish banks denominated in zlotys, with deposits yielding 6.50% and savings accounts at 5.50% or 7% for one year, work, according to their account, as a counterexample: the same money, the same person, and double the return for crossing a border. Central Europe thus appears as a destination for capital that has nowhere else to go in Spain.

Eleven entities have already cut their offers

The pressure has yielded results within weeks. A total of eleven entities have lowered the yield on their deposits or accounts trinc the Bank of Spain’s warning: Santander, Sabadell, Activobank, Bancopopular-e, Oficinadirecta.com, Deutsche Bank, iBanesto.com, Banesto, CatalunyaCaixa, Cajasiete, and Novagalicia Banco. In several cases, the cut is disguised as the end of product commercialization.

For those who already had money placed at high rates, the maneuver has an expiration date: capital remains remunerated until contract maturity, after which it enters the new normal. It will then be seen whether the trickle becomes a stampede.

Mattress cash, gold, or stocks: the menu for savers without deposits

Without competitive deposits, the conversation shifts to alternatives. Mattress cash, silver, physical gold, value investing, or stocks are the most cited refuges; the argument for buying gold is twofold, as it protects against erosion and does not finance public debt. None of these options are for beginners, and here lies the underlying problem: financial education.

Most people do not compare yields, leave their money idle, or simply do not have any. And those who save perceive that they have just destroyed the simplest and safest option available. For a saver with no market knowledge, the real decision is between 3% and nothing. Looming over the debate is also a calculation circulating in the thread: 800 billion euros of debt distributed among 47 million inhabitants amounts to 17,000 euros per head, roughly 70,000 euros for a family of four.

How long can a system last that punishes those who save?