The prospect of falling key interest rates at the European Central Bank has consequences for savers: they receive less interest from the bank.
Shortly before the European Central Bank’s (ECB) interest rate decision this Thursday, savers are receiving less interest on fixed-term deposits than they have in over a year. Nationwide offers with a term of two years bring an average of 2.68 percent, according to an analysis by the comparison portal Verivox. The last time fixed-term deposit interest rates were lower was in May 2023. For overnight money, on the other hand, interest rates are largely constant, according to the study with a cut-off date of September 6.
Since their peak in November 2023, the fixed deposit interest rates considered have fallen by an average of 0.71 percentage points, it said. Verivox regularly analyzes the daily and fixed deposit interest rates of around 800 banks and savings banks for a sum of 10,000 euros.
Banks expect ECB interest rate cut
Savings rates are heavily influenced by the ECB’s monetary policy. The deposit rate that banks receive for money parked with the central bank is currently 3.75 percent. In view of the slowing inflation in the eurozone, the financial market is firmly expecting a reduction on Thursday, followed by further interest rate hikes in the coming months. If the ECB’s deposit rate falls, banks usually pass this on to customers.
“A reduction in the key interest rate is already priced into the current fixed-term deposit conditions,” says Oliver Maier, Managing Director of Verivox Finanzvergleich GmbH. “In the coming weeks, the current trend is likely to continue and fixed-term deposit interest rates will continue to fall moderately.”
Lower inflation helps savers
Because inflation has fallen significantly, the situation for savers has improved. After deducting inflation, which was 1.9 percent in Germany in August, the real interest rate for two-year fixed-term deposits with an average interest rate is 0.78 percent. “One year ago – with inflation of over 6 percent – even the best offers on the market did not bring a positive real return, and savings lost value,” says Maier.
Hardly any movement in overnight interest rates
There is little change in overnight interest rates, it said. According to Verivox, nationwide offers recently had an average interest rate of 1.68 percent, slightly higher than at the beginning of August (1.66 percent). Savings banks (0.61) and regional cooperative banks (0.63) offer savers significantly less. “The majority of banks are still waiting before the central bank meeting,” said Maier. If the ECB lowers the key interest rates, many banks are likely to follow suit quickly and reduce the interest rate on overnight money – as they did after the central bank’s last interest rate hike in June.
Source: Stern
