New Delhi: Europeans are losing an average of €294 in purchasing power for every €10,000 they keep in their bank instead of investing, according to a study by financial technology company Revolut.
The company’s European Wealth Drain Index, published last week, found that nearly €6.3 trillion was held in low-yield deposits. This had been found after 20 European Union countries were covered by its research.
The study is based on a survey of 20,007 adults across these 20 member states along with official deposit and inflation data. It found that average one-year deposit rates stood at 2.76 per cent, compared with inflation of 2.94 per cent.
In 12 of the 20 markets surveyed, average deposit rates failed to keep pace with inflation. This means that savers were losing purchasing power even when their money was locked away for a year.
Revolut said the opportunity cost was considerably higher when compared with investments. Using the MSCI Europe ETF’s 10-year annualised return of 9.06 per cent as a benchmark, it was calculated that households forgo an average of €638 per €10,000 each year by keeping their money in cash.
Across the €6.3 trillion in deposits covered by the study, that would amount to €422 billion a year in potential growth capital that does not reach European businesses, according to Revolut.
The study has identified inertia, lack of awareness, and fragmented financial services as some of the reasons Europeans continue to hold onto their cash.
Two-thirds of respondents said they had never switched banks for a better rate. Among them, 26 per cent said they preferred their existing bank, 18 per cent considered the difference in rates negligible, and 15 per cent did not know where to look.
Close to half, or 46 per cent, incorrectly assessed their returns after inflation, while 19 per cent were unaware that inflation affected the value of their cash. One in five Europeans said they had no savings at all.
Among those who do not invest, 29 per cent cited perceived risk as the main barrier and 27 per cent pointed to a lack of knowledge.
Rolandas Juteika, Revolut’s head of wealth and trading, told Euronews that automatic investment enrollment would not address the underlying causes of this inertia.
He said Revolut’s median first-time investment in the EU was €18, arguing that lowering the barrier to entry could encourage consumers to start investing.
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An investment crunch
The findings come as the European Union seeks to channel more household savings into capital markets through its Savings and Investments Union.
European Commission President Ursula von der Leyen had said last month that €10 trillion in household savings were held in bank accounts and argued that Europe needed to put more of those savings to work for European companies.
The Commission figure differs from Revolut’s €6.3 trillion estimate because it covers household savings held in bank accounts across the entire EU, while Revolut’s figure covers only the liquid deposits in 20 member states.
The European Commission has said that the Savings and Investments Union could unlock up to €470 billion in additional investment.
The push comes as Europe faces significant investment needs. The Draghi report has estimated that the bloc would require an additional €750 billion to €800 billion in investment each year by 2030 for areas including digitalisation, energy, defence, and infrastructure.
(Edited by Aamaan Alam Khan)