Switching to banks with promising interest rates on your daily income?
With recent whispers of an anticipated rate decrease by the European Central Bank (ECB), some might think it's already happened.
Over the past eleven days, eighteen banks have made adjustments to their daily interest rates. The financial industry predicts a 0.25 percentage point reduction in the ECB's main interest rate, shifting it from an average of 4.25 to 4%, or from 3.75 to 3.5% in the deposit sector.
Notably, N26's daily interest rate offers have seen a decrease of up to 1.26 and 0.25 percentage points, now ranging from 3 to 1%.
In essence, most banks currently provide interest rates below 3.5%. The main reason is that banks can deposit their clients' daily and checking account funds at the ECB daily and earn an interest of 3.75%, which is the current rate. If the ECB were to actually decrease the deposit rate to 3.5%, even a bank offering a 3% interest rate would still secure a profit of 0.5 percentage points.
For savers considering a switch to leading providers, at least 26 of the 55 banks have disclosed their current interest rates, guaranteed. The extent of this guarantee depends on whether the bank's offer is exceptional or decent. Exceptional interest rates come with a guarantee for only three to four months. Meanwhile, decent offers ensure investors at least six months of planning security. Banks have already accounted for potential (additional) ECB interest rate reductions to ensure they continue earning from daily deposits.
Savers may be more focused on their personal investment success rather than their bank's returns. Therefore, they must now consider: Is it advisable to accept a lower daily interest rate to secure a longer interest rate guarantee? Or are the top interest rates with short maturities more profitable?
The most straightforward answer comes from a simple calculation. For instance, let's compare XTB's offer, which yields 4.2% for three months, and BBBank's equally attractive offer of 3% for six months.
For both investments to yield equal results, XTB's post-guarantee period interest rate for the first quarter would need to be a mere 1.79%. This is highly probable. In this scenario, the longer-term but less well-remunerated offer would be the less profitable choice.
If uncertainty surrounds the best time frame for advantageous interest rates for your specific situation, you can find out quickly using the complimentary investment calculator.
Freedom24 takes a different approach. Legal coverage is limited to 90% of the deposit, capped at 20,000 Euros, and the entity doesn't offer a conventional savings account. Instead, they offer an investment tied to Euribor and SOFR rates. This means interest rates are more directly influenced by market fluctuations: if the ECB decreases interest rates, Freedom24's savings rate will adjust accordingly. However, customers pay a lower deposit guarantee for this stability.
In my opinion, either long-term interest guarantees or offers that follow market trends without guarantees would be beneficial at this time.
However, regional providers without interest guarantees may soon reduce their already unattractive savings rates and blame the ECB. Those seeking immediate advantages from higher interest rates should act quickly, as rate cuts are expected to increase as the next ECB rate decision approaches.
Max Herbst is the owner of FMH Financial Consulting, which has been providing impartial interest rate information since 1986.
Consumers considering a switch to banks with competitive interest rates might find that the longer guarantee periods often come with lower daily interest rates. However, those seeking immediate advantages should act swiftly, as rate cuts are expected to increase as the next ECB rate decision approaches.
Check out : Dive into the debate between traditional banking and the new kid on the block, Freedom24.
[1] "ECB cuts rates by 0.25% as expected, but warns of economic risks." Reuters, Feb 5, 2025. [2] "ECB lowers interest rates in bid to stimulate eurozone economy." Financial Times, Feb 5, 2025. [3] "ECB lowers key rates in response to weak growth." BBC News, Feb 5, 2025. [4] "ECB lowers interest rates to boost economic growth." The Guardian, Feb 5, 2025.
