Clients have been “barely” able to get any income on their savings through traditional banking, and this won’t change any time soon, a senior HSBC official told Investment Executive Friday.
“Rates will go up. Yet at this moment, a GIC [or] a term deposit will not pay inflation, and I would not expect GICs, in the short term, to pay for inflation. And that’s why I would continue to say that managing your portfolio continues to be very important,” said Nuno Matos, Hong Kong-based head of wealth and personal banking for the HSBC Group.
During an exclusive briefing at HSBC’s Toronto office, Investment Executive asked Matos whether real returns from GICs will still continue to be low or negative.
“I would expect rates to continue to go up. We all know the Fed will continue to hike rates in the short term. In the next 12 months, I would say most of the central banks will be following that strategy,” Matos said.
The U.S. Federal Reserve intensified its drive to tame high inflation by raising its key interest rate by three-quarters of a point last week — its largest hike in nearly three decades. The causes of inflation include supply chain issues and excess demand after two years of people saving and not spending much, Matos said.
Active management has been important over the past few decades, and will continue to be, he added.
“There was a trend, for at least the last 20 to 25 years, that’s really incented customers to become much more involved in how much they manage their own wealth, and that trend was extremely low or even negative interest rates,” Matos said. Over that period, “customers could barely get any returns from their banking deposits, their traditional savings products. So they had to find alternatives if they wanted to get some income from their savings.”
Matos pointed out that rates are still considered low today, compared with their average over the past 50 years — and so the incentives to look beyond banking products remain. “That’s where we [as financial professionals] come in, with trusted advice.”