Catching Up on Daily Deposits: Historic Rate Drop Across Europe
Record-breaking Drop in Interest Rates Within Past 13 Years Span
The European Central Bank (ECB) has made a big move, slicing its key deposit rate by 25 basis points to 2%. This decision has sent ripples across Europe, causing daily deposit rates to plummet[1][3]. Let'
's delve into the impact this trend might have on savers and economies across the continent.
Banks parking funds at the ECB are currently raking in 2.25% interest - but that might change soon, as market forecasts predict another cut today[2]. To put things into perspective, daily deposit expenses have been hovering around moderate decreases for a while, but the trend has suddenly taken a sharper turn lately[2].
Savings account holders might feel a sense of unease, but fixed-term deposits offer a glimmer of hope. According to comparison portal Verivox, the average interest rate on daily deposit offers has seen a steep drop of 0.29 percentage points since February, leaving the current average at 1.27%[2].
"Banks have become more eager to pass on falling interest rates to savers now, as they held back cautiously at the start of the current rate cut cycle," explains Oliver Maier, Managing Director of Verivox Financial Comparison GmbH[2]. This shift was particularly noticeable when the ECB first zeroed out its deposit rate in 2012 and then pushed it further into negative territory in subsequent years[2].
Interestingly, the decline in daily deposit rates was even more pronounced at regional credit institutions in May, although the fall was less significant due to the already low starting level[2]. The silver lining? By comparing offers, savvy savers could still score attractive rates of over 2%[2].
As for other maturities, fixed deposit rates have slipped more gradually, but they're still falling[2]. For instance, five-year fixed deposit rates slid by only 0.01 percentage points in May, bringing the average to 2.09%[2]. Two-year fixed deposit rates saw a 0.06 percentage point drop to 2.00%, while one-year fixed deposit rates experienced a more significant dip of 0.08 percentage points, settling at 1.97% - below the 2% threshold for the first time since February 2023[2].
In essence, banks base their fixed deposit terms on their expectations for future interest rates. Since most experts previously thought the current rate cut phase was reaching its end, fixed deposit rates have been creeping down gently lately[2]. For those planning to park their funds for a longer term, the current sluggish growth and below-target inflation across the globe might make fixed deposits a safer bet[2].
In addition to the European economic landscape, global economic interdependence, inflation and growth concerns, market expectations, and geopolitical factors like trade tensions are shaping the monetary policies of other countries[1]. Stay tuned for more updates on the evolving interest rate picture across Europe and the world.
Sources: ntv.de, awi
- EZB
- Interest
- Inflation
- Investment
- Wealth
- Savings Account
- Term Deposit
The ongoing trend of plummeting deposit rates due to the ECB's policy changes could potentially influence employment policies within the banking sector, as institutions may need to adjust their finance and investing strategies to cater to lower returns from savings accounts and term deposits. Moreover, concerned savers might seek alternative investments in personal-finance management, such as venturing into business opportunities, to enhance their wealth and secure a stable financial future.
