The European Central Bank reduces main interest rates by 0.25% point
The European Central Bank (ECB) decreased its interest rates by 0.25 percentage points. This change might influence people with funds kept in a savings account or those taking out a mortgage.
The ECB regularly evaluates necessary actions to maintain or restore inflation at a 2% level, which it does every six weeks. Its primary strategy for maintaining price stability is controlling interest rates, consisting of three rates: the deposit rate (beneficial for savers), the main refinancing rate at which commercial banks get loans from the ECB, and the marginal lending rate for short-term borrowing. The deposit rate often serves as the primary interest rate.
Savings and fixed-term deposit account holders have reaped the benefits of high interest rates recently. Although there are still enticing deals, their availability has diminished since the ECB's deposit rate directly impacts customers for many banks. As the deposit rate drops to 3.25%, banks will likely lower their savings rates accordingly.
Nevertheless, banks have anticipated interest rate reductions in their strategies for this year, leading to weakening situations in many areas. As reported by financial advisors FMH on Wednesday, the typical interest rate for instant access accounts across 135 banks was 1.97%. Savings banks and regional cooperative banks generally had lower rates.
For fixed-term deposits, the average return was 2.49% for a one-year term, with rates of up to 3.4% offered from certain providers. Last year, average interest rates were substantially above 3%. The drop in fixed-term deposit rates has also occurred in longer terms, including two, five, or ten years, starting from the beginning of the current year.
The decrease in the ECB's deposit rate by 0.25 percentage points might result in a corresponding reduction in the interest rates offered by banks on their savings accounts, amounting to a loss of percentage points for savers. The percentage points decrease in the interest rates for fixed-term deposits, such as those for a one-year term, has also been observed since the beginning of this year.
