Engaging in wagering based on assured interest on your daily earnings?
Those keeping an eye on recent interest rate fluctuations might believe that the anticipated rate decrease by the European Central Bank (ECB) has already transpired.
Over the past eleven days, eighteen banks have adjusted their daily interest rates. Many financial institutions now predict a 0.25 percentage point reduction in the ECB's main interest rate, shifting it from an average of 4.25 to 4%, or from 3.75 to 3.5% in the deposit sector.
Notably, N26's daily interest rate offers have decreased by up to 1.26 and 0.25 percentage points, now ranging from 3 to 1%.
In summary, most banks currently provide interest rates below 3.5%. The reason is that banks can deposit their clients' daily and checking account funds at the ECB daily and earn 3.75% interest, as per the current rate. If the ECB were to actually decrease the deposit rate to 3.5%, even a bank offering a 3% interest rate would still secure a profit of 0.5 percentage points.
Relevant information for savers thinking about switching to leading providers: At least 26 of the 55 banks have disclosed their current interest rates with a guarantee. Depending on whether the bank's offer is currently excellent or merely decent, customers might have to endure shorter or longer guarantee periods: Exceptional interest rates are guaranteed for only three to four months, while decent offers ensure investors at least six months' planning security. In the latter scenario, banks have already accounted for potential (additional) ECB interest rate reductions to ensure they continue earning from daily deposits.
Savers might be more focused on their individual investment success rather than their bank's returns. Consequently, they must now consider: Is it advisable to accept a lower daily interest rate to secure a longer interest rate guarantee? Or are the top interest rates with short maturities more profitable?
The most straightforward answer comes from an instance calculation. Let's take XTB's offer, which yields 4.2% for three months, and evaluate it against BBBank's equally appealing offer of 3% for six months.
For both investments to yield equal results, XTB's post-guarantee period interest rate for the first quarter would need to be a mere 1.79%. This is highly probable. In this scenario, the longer-termed but less well-remunerated offer would be the less profitable choice.
If you're uncertain about the time frame with the most advantageous interest rates for your specific situation, you can find out swiftly using the complimentary investment calculator.
Freedom24 approaches things differently. Legal coverage is limited to 90% of the deposit, capped at 20,000 Euros. Furthermore, Freedom24 doesn't offer a conventional savings account but rather an investment tied to Euribor and SOFR rates. This means interest rates are more directly influenced by market fluctuations: if the ECB decreases interest rates, Freedom24's savings rate will adjust accordingly. However, customers pay a lower deposit guarantee for this stability.
In my opinion, either long-term interest guarantees or offers that follow market trends without guarantees would be beneficial at this time.
However, regional providers without interest guarantees may soon reduce their already unattractive savings rates and blame the ECB. Those seeking immediate advantages from higher interest rates should act quickly, as rate cuts will increase as the next ECB rate decision approaches.
Max Herbst is the owner of FMH Financial Consulting, which has been providing impartial interest rate information since 1986.
Consumers considering a switch to banks with competitive interest rates might find that the longer guarantee periods often come with lower daily interest rates. However, those seeking immediate advantages should act swiftly, as rate cuts are expected to increase as the next ECB rate decision approaches.
