Thursday May 06, 2021

Deposit returns insignificant in current economic situation

Published : 30 Apr 2021, 13:07

Updated : 30 Apr 2021, 13:10

  DF Report

Photo courtesy of Aktia Bank

According to Aktia's Chief Economist Lasse Corin, the weak growth potential of the Finnish economy and structural challenges will have an adverse effect on income development.

In an environment of low income growth, the importance of return on assets invested by households is emphasized as a means of accumulating wealth, said a press release from Aktia Bank

However, Finns still rely on deposits, although their return potential is insignificant in the current interest rate environment.

In a report published today by Aktia, Chief Economist Lasse Corin states that the value of household investment assets was EUR 230 billion at the end of 2020. Investment assets include deposits, quoted shares, mutual funds, and life insurance savings. At the turn of the year, Finns had both life insurance savings and listed shares worth to about EUR 46 billion. The value of savings in mutual funds was EUR 32 billion. Investment assets have grown by about 93 billion euros in ten years. Deposits are by far the most popular form of saving for Finnish households, although they offer almost no return, for example in the form of a change in value.

“We estimate that households have EUR 12 billion in excessive deposits in their bank accounts. If this amount was invested in the Helsinki Stock Exchange, it would have generated a dividend income of approximately EUR 300 million for Finnish households last year. The growth of the deposit stock is influenced by several factors, such as the situation in the labour market, the growth of household debt and the willingness to invest. However, in terms of wealth, it is essential that any extra deposits are invested with higher return expectations, such as in shares or mutual funds.”, said Lasse Corin, Aktia's Chief Economist.

Funds in bank accounts do not yield anything with the current interest rates. Despite this, they are by far the most popular form of saving for Finnish households over the past 10 years. At the same time, value changes for life insurances, mutual funds and shares have increased household’s wealth by almost EUR 40 billion over 10 years. In addition, these also have accumulated return, for example in the form of dividends, which further increases the total assets of private investors.

“Households are increasingly interested in investing and wealth, even though the amount of disposable income has not increased significantly in recent years. In an environment of low income growth, the importance of return on assets invested by households is emphasized as a means of accumulating wealth. The investment market gives households access to the benefits of higher economic growth.”, said Corin.