Savings drain in 2021 focuses on those with the fewest resources

Brazilians saved more than BRL 200 billion in 2021, considering banking products covered by the FGC (Credit Guarantee Fund), such as CDBs, savings accounts, demand deposits and mortgage and agribusiness letters of credit. This additional savings, however, was concentrated in accounts with a balance of more than R$20,000.

In the range that includes customers with a balance below this level, there was an outflow of funds throughout the year, although the total amounts are still above those verified at the beginning of the pandemic decreed in March 2020.

FGC data also show that the ability to save lost strength in relation to the first year of the pandemic, when there was a growth of R$ 830 billion in the balance of these products.

The accumulation of resources in 2020 was related to factors such as the payment of emergency aid to informal workers, precaution in the face of the economic effects of the pandemic and reduced consumption caused by social distancing.

In 2021, both government aid and restrictions imposed by the health crisis eased. In addition, inflation increased the cost of living, in an environment of still high unemployment.

Part of the 6.6% growth in the stock of these resources in 2021 is also related to the profitability of the CDI (3.95%), which serves as a parameter for some of these applications, and of the passbook (2.99%), although the advance has been below inflation, of more than 10% last year.

Savings is the only application whose balance shrank in 2021

The savings account was the only one among the main products guaranteed by the Fund whose balance shrank in 2021 (-1%). The loss of funds occurred in investments with a balance of R$ 100.01 to R$ 50 thousand and also in the 119 accounts with more than R$ 20 million.

Although all these products are covered by the FGC, in the event of insolvency of the financial institution, coverage is up to BRL 250,000 per account. Those with amounts above that only have part of the money guaranteed by the Fund —99.7% of clients are fully covered.

Daniel Lima, executive director of the FGC, says that a large part of the increase in the funding of these products is linked to the issuance of CDBs and RDBs in larger volumes and with more attractive rates for investors by medium and small financial institutions.

The share of these time deposits in banking products linked to the FGC increased from 43% to 52% over the last two years. The passbook fell from 35% to 29% in the same period. Demand deposits (current account) also advanced, while financial bills, such as LCI and LCA, lost relevance.

“What is really growing are these issuances of time deposits. Even though savings have grown quite vigorously, other products have grown even more vigorously. So the share of savings has been reduced”, says the executive.

“This is also a reflection of the rise in interest rates. We saw a migration of more volatile products to this safe haven of fixed income in search of better rates.”

If investments outside the scope of the FGC are also considered, such as funds, Treasury Direct and shares, the period of accumulation of resources, which began in the second quarter of 2020, ended in the third quarter of 2021.

In the three months ending in October last year, the result of household financial savings was negative, according to data collected by Cemec-Fipe (Center for Capital Market Studies of the Economic Research Institute Foundation).

Families withdraw reserves to pay for electricity and buy food

Researcher Carlos Antonio Rocca, who coordinates Cemec-Fipe, points out three factors that contributed to this movement: reduced uncertainty regarding the pandemic in the second half of last year, reopening of activities and a drop in real family income.

Rocca recalls that the investments in products linked to the FGC that grew the most in 2020 were those with smaller balances, especially during the emergency aid payment phase. Last year, they were the ones that lost the most resources.

“In 2020 there was a very strong saving behavior of the lowest income people. In 2021, this changes radically. [a poupança acumulada] in the ranges of smaller balances, therefore with lower income, either dropped to zero or fell sharply”, he says.

“From a certain moment on, people started to withdraw money to supplement the family budget, pay supermarkets, electricity bills. The average income of people fell very sharply with this inflationary acceleration. And the lower income segment is the one that suffers the most” , says the researcher.

Rocca says that Brazilian families still have additional savings equivalent to around 8% of their annual consumption of goods and services, but that it is not possible to say in what period this money will return to the economy. Changes in saving and consumption habits may lead Brazilians to keep part of this extra reserve for longer.

Despite the outflow of resources in some income brackets, the executive director of the FGC, Daniel Lima, says that the scenario of higher interest rates in 2022 contributes to the products linked to the Fund to continue to capture a relevant portion of savings.

“With a higher interest rate, the products remain attractive. We believe that, as an investment alternative, the product issued by banks and financial companies will continue to be part of the investors’ basket in 2022.”

What is FGC

• Private, non-profit entity that manages the protection mechanism for depositors and investors of member financial institutions
• The 231 member institutions contribute monthly with 0.01% of the total resources invested in eligible products
• Guarantees up to BRL 250,000 per account (individual or legal entity) until the date on which the Central Bank decrees an intervention or liquidation, with a limit of BRL 1 million every four years
• Deposits eligible for guarantee totaled BRL 3.2 trillion in June 2021. With the guarantee limitation, FGC coverage reached BRL 1.7 trillion (52.5% of deposits and 99.7% of depositors and investors )

Source: FGC (Credit Guarantee Fund)