Is the era of high interest rates on fixed-term deposits over?

Starting from: November 15, 2023 3:30 p.m.

After the long period of low interest rates, many savers are glad that there is again significant interest in current and fixed deposit accounts. But in recent days some banks have reduced their offers again.

For years, interest on savings accounts, daily deposits and fixed-term deposits could not be obtained in German and European banks. The zero interest rate policy of the European Central Bank (ECB) guaranteed this.

Since last year, the ECB has sharply raised key interest rates by several measures. This meant that loan interest rates for housebuilders, for example, rose sharply, but for the first time savers received a corresponding interest rate on their liquid financial assets. In September this year, the euro zone’s main interest rate finally rose to 4.5 percent.

Consequently, many German and international banks attracted savers with generous interest rates. For one-year fixed-term deposits there was recently four or even 4.5 percent, as shown by comparison portals such as Biallo, Check24 and Verivox.

Has Klarna announced a change of course?

However, in recent days the end of interest rate increases for savings deposits seems imminent and, in addition, the Swedish payment services provider Klarna, which is also strongly represented in the deposit business in Germany increased the interest rate. for one-year fixed-term deposits, from 4.12 to 3.84 percent, that is, below 4 percent. Creditplus bank, which belongs to the major French bank Credit Agricole, also slightly reduced its one-year interest rate from 3.8 to 3.7 percent.

Harbingers of a change in trend in the interest rate market? Ralph Wefer of comparison portal Verivox doesn’t see it that way: “It’s not unusual for individual banks to adjust their interest rates from time to time,” Wefer said in an interview. In many cases, banks also specifically used the deposit business to improve their financial situation.

In recent weeks, however, there has been a flattening of the evolution of interest rates for fixed-term deposits, “but it is likely that the interest rates offered will stabilize for the time being at this level. Lately we have seen even new highs in the ‘maximum interest rate range.'”

Up to 4.5 percent for one-year fixed-term deposits

In fact, several European banks offer interest rates for fixed-term deposits with twelve-month terms well above four percent. The current leader in the Verivox ranking is Portugal’s Banco BNI with 4.50 percent. Volkswagen Financial Services, a subsidiary of the VW group, is also a German provider offering just over four percent annually at 4.02 percent.

The best one-year interest rates on the Biallo consumer portal are also well above the round mark. If you want to take advantage of an offer from Germany, you can even get 4.30 percent for twelve months from Isbank, the German subsidiary of a Turkish institute. Biallo expert Sebastian Schick does not currently see a change in trend on the market either. The average of the Biallo fixed-term deposit index for one year and an investment amount of 5,000 euros is currently 2.63 percent. A 14-year high of 2.66 percent was reached on November 8 at 2.66 percent.

The pause in interest rates is not a change in interest rates

As long as official interest rates remained at their level, there would be corresponding offers for interest savers, “this is also demonstrated by the historical data we collected on the ECB’s biggest interest rate reduction to date, from mid-2007 to mid-2008.” Schick said in an interview “During this period, savings interest rates rose on average by around half a percentage point despite the ECB’s one-year interest rate cut.”

Only when the European Central Bank turns the interest rate screw and begins to cut interest rates can overnight and fixed-term deposits be expected to return to lower returns. However, at the moment there is no sign of this.

Take a look at long terms

Biallo expert Schick recommends that “savers should take a look at fixed-term deposits with very long terms” now, but at the latest in case the interest rate spiral goes down again. Individual banks such as the PBB Direkt (Deutsche Pfandbriefbank) or the Austrian Kommunalkredit Invest offer ten-year fixed-term deposits for 4.25 or 4.50 percent per year. “In some cases, the effects of compound interest can even be used with long-term deposits if annual distributions can continue to earn interest,” Schick says.

Wefer, an investment expert at Verivox, currently believes that a strategy with two-year fixed deposit terms makes sense. “The ideal would be to contract two term deposits separated by a year,” says Wefer. This means you can take advantage of the higher interest rates on longer terms and still recoup one of the two investments each year, so savers can react flexibly to changing market conditions when reinvesting.

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