After interest rates for longer-term savings investments fell again for the first time at the end of 2023, the decline accelerated again in the new year. Experts are now calling for action from the ECB.
Despite unchanged high key interest rates in the euro area, savers are now receiving less for long-term investments than at the beginning of the year. In the first weeks of 2024, the decline in interest rates accelerated, according to an evaluation by the Verivox comparison portal of around 800 banks and savings banks.
“In all terms examined, the average fixed-term deposit interest rates of banks active nationwide fell more sharply in the first three weeks of January than in the entire previous month,” said Oliver Maier, Managing Director of Verivox Finanzvergleich GmbH. The interest rate turnaround is “further gaining in shape”.
Banks prices expected Interest rate development a
According to the analysis, the decline was greatest in fixed-term deposits, which savers invest for five years. On average, active banks nationwide offered 2.81 percent interest as of January 19th. At the beginning of the year it was 3.01 percent. For two-year fixed-term deposits, the average interest rate fell from 3.24 to 3.09 percent. The interest on one-year investments fell from 3.27 to 3.20 percent.
“With time deposits, banks price in the expected interest rate development in advance because of the fixed terms,” explained Maier. After the European Central Bank (ECB) raised interest rates in the common currency area ten times in a row since July 2022 in the fight against high inflation, there is now speculation about the first interest rate cuts in the summer. The central bank’s current monetary policy decision is due today.
With inflation currently at 3.7 percent, “the real return on safe savings deposits is slipping back into negative territory,” Verivox said. However, there are still a few banks with interest rates above the inflation rate for fixed-term deposits. Losses in purchasing power are therefore “not a law of nature” even in the current market environment.
So far there has been no decline Daily interest rates
So far, Verivox has not noticed any falling interest rates in the market average for overnight money, which savers can access at any time. The average interest rate for offers available nationwide is currently 1.72 percent. At the beginning of the year it was 1.71 percent.
“Credit institutions can adapt their conditions for daily deposits at any time to changing market conditions. This is why interest rate fluctuations in overnight money often become apparent a little later,” says Maier.
In a fixed-term deposit account, savings are invested for a specific period of time. Savers cannot access the money during this time, which is why the interest rates are usually higher than with overnight money. At the end of the term, the money invested flows back with interest.
According to experts, banks benefit too much from high interest rates
Meanwhile, a group of economic experts and MEPs criticized the behavior of banks in the eurozone. The financial institutions benefited too much from the high key interest rates. The ECB must respond to this, otherwise it risks losing the public’s acceptance, according to an open letter to the ECB Governing Council published yesterday. The experts are in favor of increasing the so-called minimum reserve.
Thanks to the ECB’s deposit interest rate of 4.0 percent, banks are currently making risk-free profits of 140 billion euros. The interest rate indicates the conditions under which commercial banks can park their money with the ECB overnight. Companies and bank customers often receive significantly less interest – for example on their current or fixed-term deposit accounts.
“Private households therefore do not benefit from the ECB’s high interest rates, while they still have to bear the costs of higher-interest loans and mortgages,” criticize the 13 signatories of the letter. The ECB had already reacted to this in July and removed the interest rate of one percent on the minimum reserve. In a further step, the collective now called for the mandatory deposit percentage to be increased in order to further limit the banks’ profits.