Croats Have Record Savings, but Are Locking Away Less Money

Croatian citizens hold record amounts of money in banks, but an increasing number are keeping less of it locked away for a fixed term. At the end of July, total household deposits amounted to 43.7 billion euros, of which 33.7 billion euros were overnight deposits and 10 billion euros were term savings. In just one year, total deposits increased by 2.3 billion euros, overnight deposits by 2.8 billion euros, while term deposits decreased by about 400 million euros.

Looking at a longer period, the change is even more evident: at the end of 2024, households had 39.56 billion euros in total deposits, of which 10.83 billion euros were term deposits. By July of this year, total deposits had grown by more than four billion euros, while term savings had decreased to 9.99 billion euros. The share of term deposits in total citizen deposits fell from 27.4 percent at the end of 2024 to 22.9 percent in July of this year.

The Croatian National Bank (HNB) states that the share of term deposits among the population peaked in mid-2024, when it stood at 29.2 percent, after which it has been continuously declining. The Croatian Banking Association (HUB) reminds that this decline is long-term.

– This is a long-term trend, not a phenomenon characteristic only of this year. The decline has been particularly pronounced since 2018 and 2019, when the share of term deposits was still above 50 percent, until 2022, when it fell below 30 percent – say representatives of the Croatian Banking Association.

Such movements in HUB are largely linked to the prolonged period of low interest rates. When the yield on term savings is low, citizens have less reason to forgo liquidity and lock away money for six months, a year, or longer.

– Therefore, the simultaneous growth of total deposits and the decline of term deposits is not contradictory. The structure of savings is changing, primarily with a larger portion of funds being held in more liquid forms – they explain at HUB.

Several Causes

HUB does not have data on how many term deposits that matured during this year have been renewed, and how much money remained in accounts after maturity. Therefore, it is not possible to precisely determine how many citizens decide to simply leave their money in a current or other liquid account after the term expires.

A similar conclusion is drawn by the HNB. The central bank emphasizes that interest rates have strongly influenced households’ decisions regarding term deposits. The average interest rate on new term deposits for households in July was around 1.4 percent. At the end of 2023, it was 2.22 percent, at the end of 2024 it was 1.85 percent, and at the end of last year, it was 1.64 percent. In other words, the yield that a citizen receives for forgoing liquidity is significantly lower than it was two or three years ago. The HNB also warns that even during the period when deposit rates were nearly double what they are today, the inertia of savers was visible, meaning citizens showed a weak tendency to seek and take advantage of better term deposit conditions.

However, today, a bank deposit is no longer the only simple and conservative savings option. In recent years, treasury bills and government bonds have become widely available to citizens, and money market funds are also playing an increasingly significant role. The HNB directly identifies government securities as the main alternative to term deposits. The amount of registered government securities in September of this year was around 5.1 billion euros, which is 600 million more than at the end of 2025 and 900 million more than at the end of 2024.

It cannot be concluded that the money that has disappeared from term deposits has ended up precisely in treasury bills or bonds. The HNB explains that the payment for government securities at the time of the transaction reduces deposits in banks, but the money then returns to the banking system through government spending. The return of money does not necessarily mean that it will end up in the accounts of the same citizens.

Greater Choice of Instruments

Nevertheless, the decline in term deposits coincides with a strong increase in interest in other relatively conservative forms of investment. In June of this year, citizens subscribed to one-year treasury bills for a nominal amount of nearly 897 million euros with a yield of 2.85 percent, while the yield on three-month treasury bills was 2.60 percent. In comparison, banks in July paid an average of 1.56 percent on new term deposits for households with a term of six months to one year, and 1.75 percent on deposits up to three months.

Such a difference in yield can change the calculations. If a citizen can obtain a significantly higher yield from the state for money that will not be used for several months than from a bank, the motivation for a new term deposit weakens. Money market funds are similar competition, which Hanfa describes as instruments with high liquidity and competitive yields.

At the end of 2024, the net assets of domestic money market funds amounted to around 700 million euros, and by August of this year, it had grown to approximately 1.8 billion euros. However, this data cannot be directly compared with the decline in term deposits because not only citizens invest in funds, and the value of their assets also increases due to achieved yields. Unlike bank deposits, investments in money market funds are not guaranteed and carry a certain risk of loss.

HUB confirms that treasury bills, government bonds, and money market funds compete with bank deposits for a portion of citizens’ savings, but they also view them as part of the broader development of the domestic financial market.

– A greater choice of available instruments encourages citizens to manage their savings more actively, better understand the relationship between yield, risk, maturity, and liquidity, and gradually develop an investment culture – they state from HUB.

They also remind that banks have supported the project of government securities for citizens from the beginning and participated in its implementation. According to their interpretation, the competition of different forms of savings is not in contradiction with this support. A broader offer, they claim, allows citizens to choose between different combinations of yield, maturity, and liquidity.

– Bank deposits still play an important role, especially for citizens for whom simplicity, accessibility of funds, and security are important – they emphasize at HUB.

The Largest Decline in Term Savings

It is also interesting to note that the largest part of the decline in term savings relates precisely to shorter terms. Total term deposits of households up to one year decreased from about 6.9 billion euros at the end of 2024 to about 6.28 billion in July of this year. In euro deposits alone, the decline amounted to about 613 million euros. Short-term deposits are the most directly comparable to treasury bills and money market funds.

Whether this trend will soon reverse will significantly depend on interest rates. The HNB states that after the latest moves by the European Central Bank, there could be pressure towards higher deposit rates. The ECB’s governing council raised key interest rates twice this year, by 25 basis points in June and September, so the interest rate on bank deposits at the central bank reached 2.50 percent. Therefore, the HNB expects a tendency to increase deposit interest rates in the upcoming period.

How strong that growth will be is another important question. The Croatian banking system has a large surplus of liquidity, a stable deposit base, and a relatively low loan-to-deposit ratio. Therefore, banks do not have a strong need to compete for citizens’ savings by aggressively raising interest rates. According to the HNB, these factors have also contributed to a weaker transmission of higher rates to deposit interest rates than the average in the euro area during the previous cycle of monetary tightening.

Two Sides of the Coin

HUB also states that interest rates on term deposits will primarily depend on market rates, the ECB’s monetary policy, and the financing needs of individual banks.

– Good liquidity of domestic banks means that they do not have a strong need to attract funding sources by increasing deposit rates – they say at HUB, warning that higher deposit rates increase the cost of funding for banks, which can be passed on to the interest rates paid by borrowers, especially in loans linked to the national reference rate (NRS).

– Relatively low interest rates on deposits should therefore be viewed together with favorable interest rates on loans. These are two sides of the same coin. For this reason, the movement of deposit interest rates cannot be viewed completely separately from the cost of borrowing for citizens – they conclude from HUB.