Exploring Options for Conservative Savings Amid Declining Interest Rates

Last Thursday, the European Central Bank (ECB) lowered its official interest rates by 0.25 percentage points to 3%, marking the fourth reduction this year. This trend, according to market consensus, suggests further declines throughout 2025. With inflation under control, rates in the eurozone might dip to levels near 2% or even lower. Almudena Mendaza, head of sales for Iberia at Generali Investments, observes that this indicates a normalization of interest rates, moving away from extremes—neither excessively high nor negative. However, Mariano Guerenstein, deputy director of Institutional and Wholesale Clients for Iberia at J. Safra Sarasin Sustainable AM, notes that the situation in the United States may differ due to stronger-than-expected economic growth, potentially slowing the downward trend.

The Challenge for Conservative Investors

Falling interest rates present challenges for conservative investors seeking returns that exceed inflation. Yet, experts suggest that opportunities remain for risk-averse individuals. Víctor Alvargonzález, strategy director at Nextep Finance, advocates for fixed-income funds. These funds could benefit from high long-term interest rates on their portfolio assets and potential price revaluation due to declining rates. Estimated returns range between 4% and 5%, offering a potentially more attractive alternative to target performance funds, which may lack liquidity and incur high fees.

Fixed Income and Long-Term Strategies

According to André Themudo of BlackRock's Iberia team, conservative investors with a clear long-term strategy can consider various options. Defined-maturity funds offer predictable returns over specific periods, while fixed-income funds present varying levels of risk based on the type of securities, such as corporate, investment-grade, or high-yield bonds. Private market funds, though typically illiquid, could yield above-average returns with a minimum investment horizon of five to eight years.

Guerenstein recommends fixed-income funds with portfolio durations of three to six years, providing better prospects than upcoming Treasury bills. He also highlights sustainable debt bond funds, which may offer superior profitability due to their complexity, with target returns nearing 5% over 3.5 years. Meanwhile, Mendaza emphasizes monetary funds for managing liquidity peaks and sees potential in private debt with investment-grade quality.

Equity and Alternative Savings Options

Contrary to focusing solely on fixed income, Panza Capital highlights equities as a superior long-term option. They argue that investing in strong companies at reasonable prices ensures capital preservation and growth regardless of interest rate fluctuations. Historical performance indicates that equities outperform other asset classes over extended periods.

For conservative savers, bank deposits remain a viable choice. Depending on terms, deposit rates range from 2% to 5%. The top-rated accounts for December 2024 include the Trade Republic Account (3.25% TIN), EVO Banco’s Smart Account (2.81% TIN), and B100’s Save Account (2.67% TIN), based on Kelisto’s analysis. Accounts linked to payroll direct deposits offer even higher returns, such as the Ibercaja Vamos Account (5% TIN in the first year, 3% TIN in the second for balances up to €20,000) and Vivid Money Standard Account (5% TIN for the first two months, followed by 2% indefinitely for balances up to €100,000).

While falling interest rates challenge conservative savers, they also open opportunities in diverse investment options. From fixed-income and sustainable bonds to equities and high-yield deposit accounts, careful planning and strategic choices can ensure steady returns and long-term growth.