Fed up with returns, Europeans drain billions from banks: Report

European savers are pulling more of their money from banks, looking for a better deal as lenders resist paying up to hold on to deposits some feel they can currently live without.

The trend emerged as some of the region’s biggest lenders outlined a profitable start to the year in results that also offered a glimpse of a phenomenon dubbed a “bank walk” — a slow but notable outflow of customer cash.

Lenders wasted little time in charging more for loans when interest rates rapidly rose from an almost 15-year slumber around zero last year, but most have dragged their feet on boosting deposit rates paid to millions of customers.

 

That has boosted profits at many major banks beyond many analysts' expectations but left savers disgruntled, raising fresh questions over the longer-term stability of the sector.

“Traditional banks need to decide whether to maximise their return by keeping rates on deposits as low as possible, or to prioritise their liquidity and stability by increasing rates and retaining customers funds,” Nicola Marinelli, assistant professor of finance at Regent University London, said. Money market funds are proving popular among savers seeking bigger returns on their cash as high levels of inflation persist.

In recent years, returns on these funds have only narrowly beaten bank deposit rates but the Crane sterling denominated Money Market Fund index reported a 7-day annualised yield of 4.12 per cent as of April 25, compared with some bank interest rates still stuck below 1 per cent.