Will savings rates rise or fall? We answer this question based on developments in the market. This is our savings interest expectation for 2018.
The savings interest is historically low
The savings interest is historically low. The average savings interest on a freely withdrawable savings account is only 0.22% (rounded). At the three large banks, the interest is even 0.05%. How do we get this low savings rate? Can we expect a rise or fall? And what is the chance of a negative interest rate. We discuss this in this savings interest forecast for 2018.
Why is the interest rate low?
The current low interest rates are the result of stimulus measures by the European Central Bank (ECB). After the credit and Euro crisis, the economy fell silent. To boost spending in the Eurozone, the ECB is cutting interest rates. Saving is becoming less attractive with the aim of consuming and investing more.
For the same reason, the mortgage interest is low and you can borrow cheap consumer money.
The most important instrument of the ECB for influencing savings rates is the deposit rate. This is the interest that banks receive (or pay) for ‘parking’ money at the central bank. This policy interest is now -0.4%. Negative only. Other ways of putting away savings, such as short term loans, also yield little. Due to the ECB’s broad monetary policy there is a lot of ‘cheap money’ in the market.
Savings interest rate for 2018 (will interest rates rise or fall?)
The policy rate of the ECB was last decreased in March 2016. Nevertheless, savings rates are still falling. Banks have not (yet) fully passed the negative market interest rate to the customer. As long as the central bank leaves the unchanged interest policy, the savings interest rate will continue to fall.
The economic crisis is now over. The economy in the Eurozone is even growing beyond expectations. This is reason for the ECB to reverse the stimulus measures. The ECB has decided to phase out the buy-back program after September and to stop it completely by 31 December. The less generous monetary policy has mainly an effect on long-term loans. The expectation is that mortgage interest rates will rise slightly in 2018.
Raising the policy interest rates is a step too far for the ECB for the time being. There are still uncertainties above the market such as the US-China trade war and the outcome of the Brexit negotiations. The central bank does not expect to raise interest rates until after the summer of 2019
We expect savings interest rates to fall further in 2018. Due to the interest rate decision of the ECB, the expectation for the first half of 2019 is not much better.
Will we receive a negative interest rate in 2018?
Further reduction in savings interest rates also brings a negative savings interest rate in the Netherlands closer. At the moment you no longer receive interest for your savings at two banks.
A negative savings interest (pay for savings) is another psychological limit. This will be easier for banks with a specific target group to take than regular savings banks. Business or ‘green’ customers remain loyal to their bank. We notice that banks keep a close eye on each other. If 1 bank is going to lower the interest rate, the other banks will follow quickly.