€29 billion ‘gathering dust’ in banks due to (overly) expensive concrete

The famous phrase ‘I don’t know what to do with my money’ can collectively apply to all citizens of Croatia. Primarily because a vast amount of money lies idle in banks; it is neither deposited to earn any interest nor is it being spent. This refers to sight deposits (a’vista accounts) on which nearly €30 billion is stored. According to the latest data from the Croatian National Bank (HNB), total household deposits amounted to €39.5 billion, which is 65.5% of total deposits in domestic banks totaling €60.4 billion.

The growth of savings at the beginning of this year has somewhat slowed, from 4.8% annually in December last year to 4.4% in January 2025. After a noticeable slowdown in the annual growth of household deposits at the end of 2023 due to increased deposits into transaction accounts a year earlier following the introduction of the euro, the annual growth rate has gradually normalized since the beginning of 2024. Of the total household deposits, overnight deposits accounted for €28.7 billion (3/4 of total deposits), which is an increase of nearly five percent annually. In other words, €29 billion is in sight savings that yield practically negligible interest, but savers can withdraw it at any time.

Once low interest rates, and now…

On the other hand, citizens have term savings in banks worth €10.8 billion, which is three percent more than a year earlier. If anyone thought that ‘gathering dust’ on money is a new trend among Croatian citizens, they would be mistaken. Accumulating money in sight savings has been the dominant form of saving for the past decade, which a few years ago was related to extremely low interest rates on term savings. As analysts from Raiffeisen Bank explain for Lider, in the last 10 years in Croatia, under conditions of significant liquidity surplus in the system, the motivation for banks to raise interest rates on new term deposits has not been pronounced, especially in the household segment.

– Due to reduced motivation for term deposits in banks, clients have increasingly retained funds in sight accounts upon maturity. Since 2015, the share of sight deposits of households in total client deposits has increased by 26 percentage points, reaching a share of 50% by mid-June 2019. The trend of reduced attractiveness of term deposits has continued, with the share of sight deposits of households exceeding 77% by mid-2023, while the share of term deposits has dropped to 23% – say RBA.

In the multi-year period of low market interest rates, the difference between interest yields on term deposits and a’vista deposits has been erased. As RBA adds, before the start of the cycle of increasing key interest rates by the European Central Bank in July 2022, the difference between banks’ interest rates on term deposits did not exceed 0.1% compared to interest rates for a’vista savings.

– At the end of 2023, the interest rate difference increased to more than three percent for companies and more than two percent for households. The slower growth of interest rates for new term deposits in the household segment maintained the inclination for new term deposits during the first three quarters of 2023. Only a significant increase in interest rates on new term deposits in the last quarter of 2023 changed the trend again. The share of household term deposits increased to 27% by the end of 2023, a level it currently maintains – claim analysts.

Huge liquidity surpluses

Average interest rates on new term deposits for citizens fell by 16 basis points in January, and now an average interest rate of 1.92% can be obtained, which was most reflected in short-term deposits (from two to six months). At the same time, existing term deposits for citizens recorded a decline in interest rates by six basis points to an average level of 1.67%. The interest rate on overnight deposits remained unchanged at a minimum of 0.02%.

Given the announced further reductions in the ECB’s key interest rate and the fact that domestic banks are ‘swimming’ in money – at the end of February, they had €13.2 billion stored at the HNB – higher interest rates should not be expected. This is also confirmed by the stance of bankers. – The liquidity surplus in the local financial market determines the supply of banks as long as alternative investments are not attractive. In the previous period, investments in real estate represented the main alternative to savings in banks. A high price level has been reached in the real estate market, making further price increases questionable. This has reduced the options for the population to redirect deposits from banks to alternative investments, as well as the offer of interest rates on term deposits at banks – assess RBA analysts.

In addition, the previous year was marked by slower growth of deposits compared to loans to households. Housing loans grew at a rate of about ten percent, while cash loans recorded growth of up to 15 percent.

Buying state debt

– The state has enabled the population to participate in investing in bonds and treasury bills with an attractive yield offer. Subscribing to state issues at Fina branches or through a digital platform tailored to individual investors does not require additional administration compared to term deposits at banks, which has increased public interest. On the banks’ side, the period for term deposits offering attractive interest rates has been shortened, as a continuation of the process of lowering the central bank’s key interest rates was expected – RBA reports.

Citizens currently hold 10% of the state debt through government bonds and treasury bills. Despite this, there is still ‘plenty of savings’ in banks.