Increase in rates, what does it mean for consumers? After all, when you talk about “the ECB raised interest ratesRefers to the fact that the rates at which the bank debits loans and credits increase, at the same time as the interest rates that the bank pays to savers for their money in interest-bearing accounts and deposits increase. This measure seeks to reduce the level of consumption and encourage savings, so, at this time, it is worth knowing how rising interest rates affect bank accounts and deposits. The experts of Rankia They give us the keys.
To date, the ECB (European Central Bank) has raised rates to 1.25%, and expects this increase to continue, given the political and economic scenario that is looming on the basis of the Federal Reserve’s interest rate increases. The current interest rate in Spain is 1.25%, but in other countries these increases have been higher.
What does the increase in interest rates mean?
Although interest rates in Europe have been kept quite low due to controlled inflation, things have not been going well for the economy this year, both on the continent and globally. Interest rates are the main tool with which central banks implement monetary policy and, in an inflation scenario like the current one, which starts in the United States and drags developed, emerging and underdeveloped countries, it happens that banks raise interest rates to curb this inflation.
In simple terms, if interest rates rise, loans to purchase goods become more expensive, so consumers and businesses will think twice before applying for financing, as they will have to pay more interest. Instead, savers will be better off saving their money in interest-bearing accounts, bank deposits, bills of exchange, and other fixed-income instruments, as the interest rate they earn will be slightly higher.
Current interest rate in Europe
The interest rate of the European Central Bank after the latest ECB hike is 1.25%, after the 0.75% hike on 14 September, the month in which inflation in the Eurozone reached an unprecedented high. in the history of 10%.
However, the interest rates of the various European countries differ from each other. Although they have the rise as a common factor, some have done so on the basis of the ECB’s rise, such as Spain, and others, above this number. Let’s take a look at some examples:
|
Village |
rate increase |
Date |
Type of interest |
|
Swiss |
0.75% |
23/09/2022 |
-0.25% |
|
Sweden |
1% |
09/21/2022 |
1.75% |
|
Germany |
0.5% |
09/13/2022 |
10.00% |
|
Albania |
0.5% |
06/10/2022 |
2.25% |
|
Norway |
0.5% |
23/09/2022 |
2.25% |
|
Ukraine |
15% |
03/06/2022 |
25% |
|
Greece |
0.75% |
09/14/2022 |
1.25% |
|
Czech Republic |
1.25% |
06/23/2022 |
7.00% |
|
Poland |
0.25% |
08/09/2022 |
6.75% |
|
Belarus |
2.75% |
02/28/2022 |
12.00% |
|
Romania |
0.75% |
06/10/2022 |
6.25% |
|
Serbia |
0.5% |
06/10/2022 |
4.00% |
|
Hungary |
1.25% |
09/28/2022 |
13.00% |
|
Moldova |
3.00% |
04/08/2022 |
21.5% |
|
United Kingdom |
0.5% |
22/09/2022 |
2.25% |
|
Iceland |
0.25% |
05/10/2022 |
5.75% |
How rising interest rates affect accounts and deposits
As we mentioned, the increase in interest rates aims to reduce the amount of loans that people demand and, consequently, reduce the demand for certain products and services, which, in theory, lower prices and inflation.
However, in times of rising interest rates, the most interesting thing and what central banks are looking for is for consumers to save in accounts and deposits and buy fixed income assets. In return, the beneficiary receives a percentage to make their money profitable, so his outlook is better than that of the debtors.
The rise in interest rates: to what extent does it affect mortgages?
Mortgage customers are directly affected by the rate hikes the ECB has begun to implement in an effort to lower the rate of inflation. Firstly, for those who have thought about applying for a mortgage, the situation becomes difficult, since the loans, especially the mortgages that are long-term, they are significantly more expensive.
Secondly, for those who had fixed-rate mortgages the situation is better, since they are paying low interest at a time of high rates. However, people with adjustable rate mortgages were the hardest hit with the interest rate hikes in 2022. The Euribor has gone from 0.013% to almost 2.5% in less than 6 months as of the date of this publication. This is an increase of almost 2,725 points from last year, when the Euribor was below 0. Which means that they are paying much higher rates than those borrowers whose mortgage is fixed rate.
Rising Interest Rates Is it a Danger to Saving?
What happens to my savings if interest rates go up? On the one hand, people who already had low-interest deposits are faced with the loss of value of your savings. However, for those who are contracting these products right now, they must face a Possibility of buying savings products with a good rate of return.
Why do interest rates keep rising?
The ECB interest rate hike it is a measure that directly affects the economic situation of millions of people. However, it is bad that central banks take on to control excess demand and spending, which generates inflation. And that’s just the tip of the iceberg, as the Federal Reserve, as well as other central banks, have been printing money with their bare hands to mitigate the economic devastation of the pandemic.
But now, with a just emerging reactivation of the economy, many people have found themselves with full pockets to go out and buy, without taking into account that the production and distribution chains have not yet fully recovered. This has raised the demand for products and services in a low supply phase, one of the factors that fuel the inflationary process.
As a result, central banks have to cool buyers’ appetites for consumption, and they do so by raising interest rates, which makes money more expensive, so to speak. Summarized in simple words, borrowing is very expensive, while saving is profitable.
The bad news is that, according to statements by Christine Lagarde, president of the European Central Bank, the rise in interest rates will continue to worsen the economic conditions of households and businessesboth in Europe and in the rest of the world. Therefore, the most recommended is:
- Make financial decisions for the future
- Avoid excessive debt
- Invest in a conscious and organized way to generate new income
- Always have an emergency fund to help us resolve economic emergencies
