The preference of households is gradually gaining, almost after a whole decade, the term deposits of the banks, after the interest rate increases announced in the first two months of this year, in this category of deposit products.

From the levels of 50-70 basis points where the average yields of term deposit accounts had fallen even for amounts over 100,000 euros, banks proceeded in the first two months of the year to announce increases exceeding 2.5%, leading consumers to turn again to this category of deposit products.

It is characteristic that during February 2023 the inflows of household deposits (excluding overnight deposits) approached 2 billion euros.

The features of the new term account products

Depending on the bank chosen by each trader, the minimum limit required to open a time deposit starts from 3,000 euros, with the most common limit being 10,000 euros. The duration of the term deposit is from 12 months and above, with most products giving scalable returns that start from 1% and reach 3.5%, depending on the amount. Most of the products in this category now do not have early redemption clauses, allowing traders, if they wish, to proceed with an early “break” of term deposits. All products in this category are provided with a 100% capital guarantee throughout the life of the product. Interest payments, depending on the product, can be made at maturity, on a quarterly basis, with increasing returns per quarter, etc.

Investment products

In addition to time deposits, banks emphasize the promotion to their customer base of investment products linked to mutual funds and other forms of investment, which in any case, as pointed out, do not ensure guaranteed returns, and depending on the investment in several cases they do not even guarantee the initial capital invested. Regarding the demand for these products, according to converging bank estimates, they are also experiencing an increase after a long time. As bank executives point out in their public presentations, the logic of the specific products is not for the customer to place all of the savings in these products, but only a part, as they involve risk, in order to ensure high returns – in contrast to deposits where return of capital and performance are guaranteed. The dispersion of the funds available to an individual is the big question, according to statements by competent bank officials, who are in direct contact with the traders.

Insurance products linked to investments

Insurance products linked to investments are also in demand. Insurance companies active in the life sector have, among other things, products that cover both the insurance and investment needs of the insured. These types of products concern life insurance linked to investments (or investment funds) and are referred to by the term “unit-linked”.

As mentioned in the latest report of the Bank of Greece, in the Greek insurance market, in recent years there has been an increase in the production of premiums for unit-linked products as the total production of these in the four-year period 2019-22 almost doubled (from 21% in 2019 to 39% in 2022 in terms of life insurance market share).

Benefits and risks of investment-linked products

According to the BoE, these products provide consumers with significant advantages, mainly due to their potentially higher returns compared to traditional life insurance. The prolonged low interest rate environment of previous years and the recent general increase in inflation, globally, have highlighted products that also have investment characteristics as an attractive solution for policyholders.

But, in addition to the potentially higher returns, there are also certain risks that policyholders, as stated by the Bank of Greece, should be aware of in relation to the specific products.

First, because the products in this category are linked to mutual fund units or internal variable funds, i.e. funds managed by the insurance company itself, they are sensitive to market changes and therefore involve investment risk, which they usually bear the insured.

Secondly, these products are accompanied by investment costs, which are passed on to the insured, with the result that in many cases the returns at maturity are not as expected.

Third, they are products whose operation is often highly complex, which increases the risk of unwise selling (i.e. selling that does not match the client’s investment and insurance profile) and the risk of there being, again in this case, a mismatch between the actual returns and the policyholder’s expectations.