Banks in Cyprus were among the slowest in the euro area to raise deposit rates after the European Central Bank increased interest rates, according to a new ECB working paper examining deposit pricing between 2007 and 2024.
The findings place Cyprus alongside several southern European economies where savers benefited less from higher interest rates than customers in northern Europe, highlighting significant differences in how ECB monetary policy reached households across the currency union.
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Deposit Rates Did Not Rise Equally Across Europe
The researchers found that banks in southern euro area countries generally passed on a smaller share of ECB rate increases to depositors than their counterparts in the north.
While monetary policy is set centrally by the ECB, its effects on savers varied widely between countries. The paper concludes that those differences were driven less by banks themselves than by the behaviour of depositors.
Why Banks Could Keep Deposit Rates Lower
According to the study, the biggest shift came after the ECB began raising interest rates in 2022.
Customers most sensitive to higher returns increasingly moved their savings into term deposits, money market funds and other interest-bearing products. Those who kept their money in overnight accounts were generally less likely to switch providers or actively seek higher rates, giving banks greater flexibility in setting deposit prices.
The researchers argue that this change in depositor behaviour played a larger role than differences in banking competition.
The Legacy Of Negative Interest Rates
Years of negative ECB interest rates also shaped how households and businesses managed their savings.
With few attractive alternatives available between 2014 and 2022, most depositors kept money in overnight accounts. Once rates started rising, wealthier households and businesses, which typically respond more quickly to changes in returns, shifted into higher-yield savings products.
Businesses proved more responsive to interest rate changes than households. Among consumers, savers in higher-income northern European countries were also more likely to move funds in search of better returns than those in lower-income southern economies, including Cyprus.
Banks Retained Strong Pricing Power
The study suggests banks maintained substantial pricing power throughout the rate-hiking cycle, allowing them to keep much of the benefit from higher interest rates rather than passing it on to depositors.
Researchers estimate that if all savers had been equally willing to move their money in search of better returns, overnight deposit rates would have been significantly higher, particularly during the ECB’s 2022–2024 tightening cycle.
That finding reinforces the paper’s central conclusion: depositor behaviour, rather than limited banking competition, was the main reason deposit rates rose more slowly than policy rates.
What It Means For Cyprus
For Cyprus, the findings illustrate why deposit rates remained relatively subdued despite one of the fastest monetary tightening cycles in the ECB’s history.
More broadly, the study suggests that the effectiveness of monetary policy depends not only on central bank decisions but also on how willing households and businesses are to actively manage their savings. Improving financial literacy and increasing awareness of alternative savings products, the authors argue, could strengthen competition for deposits and improve the transmission of future interest-rate changes.
