The Series F Certificates, available from the 5th, offer an interest rate of 2.5%, one percentage point less than the previous edition, but also more modest permanence premiums and longer maturities. Nevertheless, this remains an interesting savings instrument given the offer of products with guaranteed capital at the national bank, which has meanwhile announced time deposits with higher interest rates than usual. Economist and professor at the Porto Business School, Filipe Grilo, spoke to DN/Dinheiro Vivo about the government’s motivation to change the conditions of Série E, financial literacy in Portugal and other investment options.
Are the changes to the terms of Savings Bonds, with the launch of the F-series, a disincentive for the middle class to save?
This rate cut discourages saving. And not only the interest rate cut, but also the reduction of the permanent premium and the longer term made the product much less attractive. The middle class managed to save during the covid period and thus build up an interesting buffer, which is used to pay off their more expensive loans, but also to invest in savings bonds. In the first phase, savings were more invested in treasury bills, which generated a higher remuneration, but later, with the reversal of monetary policy, savings bonds became more relevant and people migrated from one product to another .
What analysis do you make of the reasons that led the government to make these changes? Was it the fear of jeopardizing the bank’s financial health, with a flight from deposits to Savings Bonds?
For me, what happens is that the decision, in political terms, makes no sense, it’s a kind of political suicide. The argument used by the Public Debt Management Institute – that we are going to cut back on debt management – also makes no sense. Literally this is true, that is, the Portuguese state will save. But politically it is more difficult to sell this idea because Portugal does not need this money. The country will save at most and with very conservative accounts EUR 160 million, which is not much more if we compare, for example, the extraordinary increase in pensions with EUR 1 billion. In fact, the real reason has to do with deposits, but not those of the big banks. In recent years, the big banks have gained access to the so-called quantitative easing. The European Central Bank has bought them debt and that is why the big banks are currently full of liquidity. And that is why interest rates on deposits are not rising any further. The problem lies with the small and medium-sized banks, which did not have access to it quantitative easing and are much more dependent on deposits. And once this migration from deposits to savings bonds starts, these banks start to shake.
Is it then this fear that justifies this change?
I believe this is the reason for the government’s decision because, as you can see, term deposits are already starting to pay out more than savings bonds, especially in small banks. It almost seems as if the government has decided to raise interest rates from 3.5% to 2.5% to set an interest rate that is below the deposits of small banks and above those of large banks.
This analysis reinforces criticism that the interview with the president of Banco CTT may have influenced the government’s decision. Do you think it had an impact?
I think, more than that, it was what was happening outside. I still haven’t heard any statements from Mário Centeno [governador do Banco de Portugal], nor the Council of Public Finances on this. What seems to me is that there may be some caution in managing information precisely because there may be some fear of financial instability in smaller banks. But neither the government nor the governor himself can say that, because there they could cause a run on deposits in these banks and make the problem even worse.
Are the Savings Bonds in this new series still a good option for family savings?
Yes. If we only look at the major banks, Savings Bonds remain a very interesting option. If we now look at the small sofa, there may be interesting alternatives. I think sometimes there is still a fear of placing deposits with small banks, but deposits up to 100,000 euros are protected and therefore there is no reason to be afraid.
Do these fears you speak of have anything to do with financial illiteracy on the part of the Portuguese? Could this somehow contribute to banks continuing to offer average interest rates lower than those in the Eurozone?
Yes, in the sense that the Portuguese have little financial knowledge and are risk averse. This also justifies being held hostage by these two instruments, term deposits and savings bonds. There is a whole other world of investment in which the Portuguese’s money could yield more, besides the fact that reducing demand for these products would force banks to make products more interesting in order to win that investment.
Do you think the money channeled into savings certificates is good for the economy or could it generate more wealth if used in a different way?
This is a good discussion. It is curious that, compared to other comparable countries, we are by far the country where households invest more money in the national debt. Eurostat data for 2021 shows that the Portuguese held about 12% of the total national debt in that year. If we look at Spain, that is 0.1%. In France it is about 0% and in Italy about 6%. The question is whether this money can be used in other sectors to make this investment much more profitable. And the answer is basically yes, but we will come back to the issue of financial literacy. One way would be to use that money to finance, say, a real estate investment fund to build houses, a tourism investment fund, or even a fund to support industrial companies.
Are we still not talking about financial literacy?
Yes, but there is evil for good. This change sparked this discussion a bit. As an economist, I advocate that there should be a discipline in primary education so that young people have this ability for the future, because identifying investment opportunities and understanding how saving works can bring financial independence to lower-income people at an earlier point in time in their life.
It would be a tool for the social elevator…
Doubtless. In the United States, it is the poorest people who invest more money in stocks, which is why one of the indicators of re-election probability in the US is the stock index. If the market grows, the president is more likely to be re-elected. Americans watch this a lot because they realize it’s also a form of social lift and to have a little more profitability in their savings.
Source: DN
