money becomes more expensive
This means increasing interest rates for savings and loans
The European Central Bank has been pursuing a zero interest rate policy for some time. Given the sharp rise in prices, it is now forced to take countermeasures. This also has implications for consumers. Read here what they are.
On 1 July, the European Central Bank (ECB) will raise the benchmark interest rate to 0.25%. Banks can no longer borrow money from the ECB for free. “The deposits of private customers are therefore becoming more attractive again,” says Philipp Rehberg of the Consumer Advice Center in Lower Saxony. So how and where will rising consumer interest rates affect?
Anyone who thinks the interest rate on overnight or term deposits will rise in the short term will likely be disappointed. Because according to Duygu Damar of the Institute for Financial Services (IFF), this does not depend on the key interest rate. “For savings accounts, the benchmark interest rate for the ECB’s deposit facility is more relevant,” he says. In other words, the interest rate that financial institutions have to pay when they park their customers’ deposits with the ECB. And that remains unchanged at minus 0.5 percent for the time being. So banks continue to pay negative interest on deposits.
The increase in the rate on money saved will come gradually
According to Damar, the benchmark rate hike is a start. “It shows that the ECB wants to end its negative interest rate policy.” It is therefore expected that the interest rate on deposits at the deposit facility will also increase in the coming quarters. Until that happens, deposit interest rates would still not rise.
Damar doubts banks will immediately pass on a future positive benchmark interest rate on ECB deposits. Banks haven’t made a profit in the deposit business for years. Rather, they would suffer casualties there. “Therefore, the increase in the interest rate for the money saved by customers will happen gradually,” he says. But even if individual financial institutions prematurely raise interest rates in the deposit business by one-tenth, the real interest rate would still be significantly negative given the current inflation rate of nearly 8% and the loss of power to do so. purchase would be huge.
Negative interest rate management should be relaxed
However, Rehberg at least assumes that banks are gradually easing the management of default interest on high balances. Several financial institutions have already announced that they will significantly increase custody fees allowances.
Damar estimates that the moment the ECB’s deposit facility moves into neutral or positive territory, negative interest rates will drop completely. Because many banks would refer to the ECB’s negative interest rates in the so-called custody fee agreements they have entered into with their clients.
In the credit business, interest is passed on
Contrary to interest on savings, loan rates are likely to continue to rise. “The increase in market interest rates is usually passed on directly to the customers here,” says Philipp Rehberg. This concerns consumers both in the case of real estate and overdrafts, and in the case of consumer loans.
Consumer advocate recommends keeping an eye on expensive overdrafts and only using them in case of short-term financial bottlenecks. In the long run, regular consumer credit usually makes more sense.
When home loans expire, those affected now face the question of what will happen after the fixed interest rate period ends. However, no one can predict with certainty how interest rates on construction will develop in the medium and long term, Rehberg says.
Whether a term loan, or an advance commitment for a subsequent loan at a fixed interest rate, makes sense must be decided on a case-by-case basis. “The primary goal should always be to secure financing so as not to jeopardize property conservation,” says the consumer advocate.
Build ten-year loan interest over 3 percent
The effective interest rate for the 10-year loan climbed above the 3 percent threshold yesterday for the first time in more than a decade, as announced by Frankfurt-based financial advisory firm FMH. Interest rates above 3% for ten-year construction loans were last observed on April 5, 2012.
The most recent rise in interest rates since June 7 was “particularly extreme” with a jump from 2.79 to 3.02 percent in one week. The trigger is likely high inflation and the announcement by the European Central Bank (ECB) that it will raise key interest rates.
Loans for home buyers are likely to get more expensive, FMH founder Max Herbst expects. In April, he thought a 4 percent interest on a ten-year loan to the end of the year was conceivable. Now it is conceivable “after the summer break”.
Interest rates have risen sharply in recent months. As of December, the interest rate for the 10-year loan was still 0.9 percent. Munich-based real estate financier Interhyp currently sees construction interest rates for ten-year loans averaging just under 3%. That’s 2.95 percent, a company spokesperson said.