In this article, the first of a two‑part series, members of our liquidity team explore cash trends in a rapidly evolving financial landscape for corporate treasurers.
Read this article to understand:
- How overnight and deposit rates vary significantly in the euro area
- The strategic implications for cash management when deciding between bank deposits and alternatives
- Why money market funds (MMFs) can present a good solution for corporate treasurers
The corporate treasury function has evolved from a back-office operational role to a strategic value driver, particularly in the realm of cash management. This transformation has been accelerated by the extraordinary monetary policy environment of the past decade, which has seen central banks navigate through negative interest rates, quantitative easing programmes, and rapid policy reversals. For European corporations, these dynamics have created both challenges and opportunities in cash management solutions.
In today’s rapidly evolving financial landscape, European corporates are rethinking how they manage and deploy cash. This two-part series provides a comprehensive overview of the latest trends in corporate cash balances, the differences in overnight and one-year deposit rates by country and the growing strategic importance of MMFs.
In the first part we begin by analysing the current state of overnight deposit rates, identifying both the highest and lowest yielding markets and the local factors shaping these outcomes. Next, we turn to one-year deposit rates, identifying where corporates can potentially find the most attractive returns and why certain countries may consistently offer lower yields. The discussion then shifts to the strategic implications for cash management, comparing the benefits and limitations of traditional bank deposits versus MMFs in today’s environment. Finally, we look ahead to the European Central Bank (ECB)’s rate outlook and what it means for corporates managing euro‑denominated liquidity.
Current state of overnight deposit rates
As of end June 2025, corporate treasurers across the euro area faced a markedly uneven landscape in average overnight deposit rates. Figure 1 provides a snapshot of deposit rates by country, revealing a range from 0.86 per cent in Luxembourg to 0.03 per cent in Cyprus and Malta. Such divergence underscores the importance of local banking dynamics, regulatory environments, and competitive pressures in shaping short‑term liquidity pricing.
Larger corporates should be able to achieve higher rates, in some cases close to euro short‑term rate
It’s important to highlight that these are averages across the entire corporate spectrum, from very small to the largest of corporates. All else being equal, larger corporates should be able to achieve higher rates, in some cases close to euro short‑term rate (ESTR, 1.93 percent as of September 18, 2025).
It’s also important to highlight that these are for overnight rates. In other words, these deposits are available instantly. Term-deposits, where money is locked up for a period of time may offer higher rates, however, they do so at the cost of not being available until the end of the term. In a situation where cash reserves are needed with little notice, or in a crisis situation, cash in term deposits may not be readily available.
Figure 1: Overnight deposit rates (per cent)
Source: Aviva Investors, European Central Bank. Data as of June 30, 2025.1
Luxembourg and Netherlands currently lead the European Union (EU) in overnight corporate deposit rates, reflecting competitive banking sectors and strong demand for short‑term liquidity. Their elevated rates suggest banks are actively courting corporate cash, possibly due to tighter funding conditions or strategic positioning in financial services. Germany, while offering a slightly lower rate, maintains its reputation for stability and conservative liquidity management.
At the other end of the spectrum, Cyprus, Portugal, Greece, and Malta are offering almost negligible returns on overnight deposits. These near‑zero rates may reflect subdued demand for liquidity, ample banking reserves, or a tighter monetary policy transmission. As peripheral euro area economies, these countries often face different banking dynamics compared to their core EU partners.
Figure 2 shows the term deposit rates for the euro area. Countries like Estonia, France, Spain, Slovakia, and Italy are offering some of the highest deposit rates for maturities up to one year, ranging from 1.93 per cent to 2.14 per cent.
Figure 2: Term deposit rates, up to one year (per cent)
Source: Aviva Investors, European Central Bank. Data as of June 30, 2025.1
This divergence reflects more than just ECB policy transmission. It highlights how local banking competition, funding needs, and inflation expectations are shaping deposit pricing at the national level. In smaller markets like Estonia, banks are competing aggressively for liquidity, while in larger economies such as France and Italy, deposit rates are being adjusted to stay competitive with bond yields.
The spread between overnight rates and 1-year deposit rates, as shown in Figure 3, offers insight into how different economies are pricing liquidity, risk, and future rate expectations.
Figure 3: Spread difference between overnight rates and term deposit rates up to one year (basis points)
Source: Aviva Investors, European Central Bank. Data as of June 30, 2025.1
Figure 3 reveals an interesting insight for corporates. While one-year term deposits generally offer higher yields than overnight rates, the spread is often modest in several European countries.
MMFs seek to provide materially higher yields than both overnight and term deposits in several jurisdictions
In markets like Luxembourg, Germany, and the Netherlands, the incremental return for locking up cash in a one-year deposit is minimal. This raises a fundamental question - is it worth sacrificing liquidity for such a small yield premium? In many cases, the answer is no. MMFs such as the Aviva Investors Euro Liquidity Fund could offer as better alternative. They seek to provide materially higher yields than both overnight and term deposits in several jurisdictions, daily liquidity, allowing investors to access cash without penalty and low risk, with diversified holdings and strict regulatory oversight.
The key takeaway here is when the incremental yield from term deposits is negligible, investors should reassess the value of locking up capital over long horizons. MMFs can offer not just liquidity and flexibility, but also the potential for competitive returns, positioning them as a strategic pillar for cash management strategies.
The importance of active cash management
Deposit rates across Europe highlight both opportunities and limitations for cash management, corporates with cash balances are increasingly re‑evaluating their options. While traditional bank deposits remain a familiar choice, the evolving interest rate landscape and regulatory environment means that many corporates are also already invested in or actively considering MMFs. By using MMFs, corporates can potentially diversify risk, access greater liquidity and enhance yield. As a result, access a competitive alternative to conventional deposit strategies.
Figure 4 shows the graphical representation of the euro area overnight rate versus term deposits up to one year, while Figure 5 shows the Aviva Investors Euro Liquidity Fund’s gross yield (MMF) against ESTR.
Figure 4: Traditional bank deposits, overnight versus up to one year (per cent)
Source: Aviva Investors, European Central Bank. Data as of June 30, 2025.1
Figure 5: Money market funds versus short-term rates (per cent)
Past performance is not a reliable indicator of future performance.
Note: Aviva Investors Euro Liquidity Fund, one-day gross yield, and ESTR. The yield shown is historic and reflects the income earned by the fund verus ESTR (the fund's benchmark) over the stated period for one-day gross yield. It is provided for informational purposes only. It does not represent any indication of future performance. Fund inception date: August 18, 2008. Yields may fluctuate and are subject to change depending on market conditions and portfolio composition. The fund is a MMF. An investment in a MMF is different from an investment in deposits; the principal invested in the fund is capable of fluctuation. The fund does not rely on external support for guaranteeing liquidity or stabilising the net asset value per share/unit. The risk of loss of the principal is to be borne by the investor.
Source: Aviva Investors, BRS Aladdin, iMoneyNet. Data as of July 31, 2025.
The historic yield of the Aviva Investors Euro Liquidity Fund (MMF), as shown in Figure 5, highlights the importance of active cash management in a changing interest rate environment. While euro area overnight and short-term deposit rates remained near zero for years, both surged in response to ECB rate hikes from 2022, with the fund’s yield closely tracking these market shifts. This demonstrates how a well-managed MMF can capture opportunities in rising rate cycles, provide resilience during volatility, and offer investors a flexible, transparent solution for their liquidity needs.
Importantly, since the end of the ECB’s experiment with negative interest rates, the MMF has delivered a yield higher than one-year, locked up, deposits, while still providing investors with daily access to cash.
The table in Figure 6 outlines the key differences of traditional bank deposits versus MMFs.
Figure 6: Bank deposits versus MMFs – a comparison
| Feature | Bank deposits | MMFs |
|---|---|---|
| Risk | All your cash is placed with a single bank, so your exposure is concentrated. | Your investment is spread across many issuers, providing built‑in diversification. |
| Credit quality | Depends on the bank in question. | Typically, very high. For example, the Aviva Investors Euro Liquidity Fund is rated ‘Aaa‑mf’ by Moodys. |
| Liquidity | Early withdrawals from term deposits can trigger penalties or restrictions. | Most MMFs allow you to access your cash on the same or next business day, with no lock‑up. |
| Operational simplicity | Achieving diversification often means opening accounts and managing instructions with multiple banks. | A single MMF investment can provide instant diversification, with straightforward dealing for subscriptions and redemptions. |
| Yield | Rates depend on each bank’s funding needs and can fluctuate unexpectedly. | MMFs actively manage a portfolio of short‑term securities, aiming to capture opportunities as markets move. Returns are not guaranteed, and capital is at risk. |
| Fees | Fees are negotiated with each bank, and breaking a term early can incur extra costs. | MMF fees are built into the product, so returns are quoted net of costs. |
Source: Aviva Investors, October 2025.
MMFs can act as a compelling alternative to traditional bank deposits. The data shows that MMFs, such as the Aviva Investors Euro Liquidity Fund, can yield materially more than one-year bank deposits across European markets.
Unlike deposits, MMFs can potentially offer enhanced returns while maintaining daily liquidity and a conservative risk profile. In some jurisdictions, the yield on the Euro Liquidity Fund seeks to exceed one-year deposit rates by 50 to 100 basis points, highlighting a significant opportunity for corporates to optimise returns without compromising on capital preservation or access.
ECB rates forecast and why this matters for corporates with cash balances
Markets currently expect rates to remain on hold for the foreseeable future, with only a small probability of another cut by year-end. The ECB’s stance reflects a balance between controlling inflation and supporting modest economic growth, amid ongoing global uncertainties.
Figure 7 shows the numbers of rate cuts the market is expecting by year end and in 2026.
Figure 7: ECB market expectations on the number of cuts/hikes (basic points)
Note: Bloomberg’s World Interest Rate Probability (WIRP) function.
Source: Aviva Investors, Bloomberg. Data as of August 29, 2025.
For corporates, this stable rate environment means that yields on euro‑denominated MMFs are likely to remain attractive, due to the potential of competitive returns. The ECB’s cautious approach also means that MMFs remain a resilient and flexible tool for managing liquidity, especially as the outlook for both inflation and growth remains uncertain.
Conclusion
In today’s uncertain economic environment, effective cash management takes on an even greater significance, which goes beyond cautious financial planning. Navigating this environment requires a strategic response to evolving macroeconomic conditions, geopolitical risks, and changing investor expectations in order to reduce and diversify risk, and maximise returns.
In this context, MMFs are a critical tool for corporates, offering a combination of capital preservation, daily liquidity, and competitive yields. As corporates seek smarter cash strategies, MMFs provide the flexibility and diversification needed to navigate volatility, optimise returns, and maintain resilience.
In the second and final part of this series, we will be examining the increase in European corporate cash holdings and the macroeconomic and sectoral forces driving this growth.
