Why are deposit interest rates falling more than mortgage interest rates?

BarcelonaBanks make their living from the difference between the interest at which they lend money and what they pay to hold it. During the six-year period from 2016 to July 2022—when the European Central Bank (ECB) began raising rates—they had to rely much more heavily on fees to make a profit. A new cycle of interest rate increases began in July 2022 and continued until September 2023, and bank profits soared. However, a new phase began in June 2024, resulting in cheaper mortgages, both those linked to the Euribor and new mortgages. However, the fact remains that deposit interest rates have fallen even further.

This reminds therocket and feather effect, which competition authorities denounced in reference to oil companies: when oil prices rise, they move very quickly to the gas stations, like a rocket; while when they fall, they reach the pumps more slowly, like a falling feather. It's similar. Interest rates on accounts and deposits are for shorter terms, and adjustments can be made much more quickly than on loans, especially those used to purchase homes, which are for long terms. There's a lot of competitive pressure for mortgages in an environment of falling money prices; and less so in raising money, because most customers, who tend to be conservative with their savings, don't have many options to choose from, offering low-risk alternatives, and therefore, banks have no incentive to push the commercial envelope. And so they maintain or improve their margins and, consequently, their profits. In fact, a good portion of the money is in accounts that yield just over 0%.

In any case, the Euribor, the main reference for variable-rate mortgages, has been hovering around 2% for some time now. In May it closed with an average of 2.081%. It was below the official price of money until Thursday, when it fell to 2%. Although further interest rate cuts are expected, uncertainty prevails over the trade war initiated by the Donald Trump administration in the US, so loan interest rates are falling more slowly and have even risen in the case of fixed-rate mortgages, to an average of 2.798% (2.779% in May). Deposit interest rates are at 1.97% (2.02% in May). The intermediary Trioteca also admits a certain stagnation of the Euribor around 2%, although it expects it could fall below that level in the coming months. Ultimately, given the economic interconnections caused by globalization, Everything will depend a lot on Trump's next steps..