…Many of you have surely heard this good advice before. But that is easier said than done at the moment. The traditional savings deposits favored by our grandparents and parents are hardly yielding any returns any more. At the same time, inflation is causing our deposits to lose value. The good news: With the right investments, saving is still worthwhile! But what is the real reason why interest rates have been in the cellar for years?? And what other options do savers have to get more out of their money?? We explain:
Who actually sets the interest rates?
In Europe, the European Central Bank (ECB), based in Frankfurt a.M. responsible for this. Its task is to safeguard the purchasing power of the euro and price stability in the euro area. It prevents the value of money from being subject to major fluctuations. The euro area comprises all EU countries that have adopted the euro as their currency. The European Central Bank controls monetary policy primarily by setting the level of the key interest rate. This is the interest rate at which banks in the euro area can borrow money from the European Central Bank. This key interest rate is currently 0.0%. The deposit rate is currently even in negative territory at -0.4%. Banks therefore pay a kind of "penalty interest" for being allowed to deposit their money with the ECB in the short term.
The banks and savings banks are guided by these key interest rates when setting the conditions for their customers. As a result, loans became very cheap, while interest rates for savers became less attractive.
Why is the prime rate so low??
You can write whole books about this, which has also happened several times. We try to give you a short overview here:
The envious interest rate level is u.a. In the financial crisis that culminated in the bankruptcy of the investment bank "Lehman Brothers" in the U.S. in September 2008. The reason for the collapse was the bursting of the so-called "real estate bubble" in the USA. Many U.S. citizens had previously received loans for their own homes, although in some cases no income or other collateral was available. At some point, they were no longer able to pay these loans. The houses had to be foreclosed and lost massive value. In order to earn even more money with these loans, the banks involved turned them into risky securities in complicated procedures and sold them on to other banks and customers. This is how the real estate crisis turned into a banking crisis. At this point, banks hardly trusted each other anymore. In order to maintain the banking system, central banks around the world lowered the key interest rate at that time. The banks were able to borrow money there and thus continue to function. As the crisis progressed, however, Germany, the U.S. and other industrialized countries also slid into an economic downturn. Consumption slumped, which became a problem especially for export-rich countries like Germany. With various economic stimulus programs and cheap money, countries around the world tried to contain the consequences of the economic crisis. On top of that, there was the Greek crisis and and… These measures did get the economy back on its feet, but interest rates have remained at a very low level since then.
Due to currently rather gloomy economic prospects, the ECB has held out the prospect of continuing to pursue this monetary policy.
Savers can trade
The classic savings book or comparable financial investments no longer bring the desired returns. What other forms of investment are available? In any case, it is advisable to diversify your investment across different products and maturities. Among other things investors can achieve thereby also a protection against inflation. In addition to overnight money, fixed-term deposits and savings, the purchase of investment funds, real estate (funds), precious metals or shares can also be considered. Basically, investments in tangible assets (stocks, equity funds, real estate) are suitable as a means against inflation. But here you should also look carefully. How the concrete distribution should look, is individually very different. This depends on the amount of your assets, but also, of course, on your personal willingness to take risks. Let us advise you. Together we will find the right investment strategy for you. You can make an appointment with your contact person directly online here.