Savings – whether kept as cash or invested – as long as it’s a choice

It’s a refrain that’s been going round for years: Italians hold too much cash in their current accounts – over 1,600 billion – and should invest more. This assertion almost takes it for granted that those who keep their money in cash don’t know how to invest or are simply afraid of the markets. But that isn’t necessarily always the case.

Keeping money on the sidelines does not necessarily mean following a failed investment strategy. It can also form part of a wealth management plan that includes a component designed to deal with unforeseen events, finance upcoming projects, seize opportunities as they arise and, during periods of market uncertainty, reduce the overall risk of the portfolio.

In many cases, therefore, it may be a conscious choice, rather than a decision not to invest. It is a pity, however, that this choice is not always adequately rewarded, especially since we have been through the era of zero interest rates. When the ECB began to raise the cost of borrowing, millions of account holders continued to hold cash in their accounts, earning returns reduced to a bare minimum. The rise in interest rates was, in fact, quickly reflected in the cost of mortgages and loans, but not in the returns on deposits. There is, however, no shortage of alternatives for managing cash more efficiently: deposit accounts, ETFs and money market funds, BoT bills and other short-term government securities. These solutions (described in the cover story) all pursue the same objective but differ in terms of risk level, liquidity, tax treatment, costs and how they are used.

However, savers looking for an alternative to a current account do not always manage to navigate these options and identify the ones best suited to them. In this case, the choice is not whether to hold liquidity, but rather to fail to choose how to manage it – with a hidden cost that may not be visible on the bank statement but which accumulates over time, whilst inflation continues to erode purchasing power. And it is precisely at this stage that the banking sector’s restructuring could become a litmus test. If mergers boost profit margins in banks’ balance sheets, some of the benefits should be passed on to customers, and therefore liquidity management cannot be sidelined.

For years, deposits have provided banks with a stable and low-cost source of funding. Paradoxically, there is a risk that current account holders may be penalised by reduced competition due to the decline in the number of banks available, although strong competitive pressure is coming from fintech banks and foreign banks, which are required to offer a fairer return on liquidity – not only in advertising campaigns aimed at new customers, but also in the terms and conditions offered on an ongoing basis to those who have already entrusted their savings to them.