When will ECB lower interest rates? And what does that mean for you? “Then the banks themselves will quickly reduce savings interest rates” | MyGuide

When will ECB lower interest rates? And what does that mean for you? “Then the banks themselves will quickly reduce savings interest rates” | MyGuide
When will ECB lower interest rates? And what does that mean for you? “Then the banks themselves will quickly reduce savings interest rates” | MyGuide

Spaargids.beNow that inflation has fallen again in Europe and the US, we should expect the ECB (European Central Bank) and the US Federal Reserve to cut their interest rates. Only, when do they do that? Why will savings yield less? And how do you still benefit from your home loan? Spaargids.be explains it.

By Tom Dejonghe, in collaboration with Spaargids.be

03-04-24, 10:15


What can we expect?

“The ECB has not yet given any indications, but the US Fed has. She proposes three interest rate cuts of 0.25 percent each for three years in a row. So -0.75 percent annually, in 2024, 2025 and 2026,” explains financial expert Paul D’Hoore.

When will the first interest rate cut occur?

“The American Fed will meet about this on May 1; the ECB on April 11,” Paul D’Hoore continues. “But in practice I don’t expect any movement at either meeting.”

“I suspect that the first interest rate drop in the US will occur in June, followed by a second and a third in September and December,” said John Romain of financial advisor Immotheker Finotheker. “I am curious whether the ECB will follow the American interest rate decisions immediately or only a few months later.”

What does it depend on?

“How soon the expected drop in interest rates will come depends on the further cooling of inflation,” said Paul D’Hoore. And therefore also the level of employment and wage developments. “When employment is high, as it is today in Europe and the US, people keep spending,” says John Romain. “Moreover, expenditure continues to rise as people are sought after in the labor market and therefore receive higher wages.”

Only if employment and therefore consumption decrease, causing demand to decrease compared to supply, and thus inflation to fall further, can the European and American central banks cut interest rates. John Romain: “In recent months we have seen signs that employment is declining. Inflation will therefore also normalize further.”

What is the influence on the savings interest rate?

“If the central bank lowers its interest rate, this will quickly have an effect on the interest rate on savings accounts. We can expect a decline there,” explains Paul D’Hoore. “In the past, banks offered home loans with a fixed interest rate of 1.2 to 1.5 percent, which are still ongoing. As a result, they can no longer grant interest to their savers,” John Romain emphasizes. “So if the ECB and the American Fed lower their interest rates, the banks themselves will quickly reduce savings rates, by the same percentages.”

Which savings account yields the most? Currently, five banks offer 3 percent or more interest rates.

And what does that do to the interest on your home loan?

The banks provide the vast majority (96%) of home loans at a fixed long-term interest rate, 20 or 25 years. “That interest rate evolves more in line with the long-term interest rates on the financial markets, but less sharply,” explains Paul D’Hoore.

“For example, the fixed interest rate on 25-year home loans fell by 0.5 percent, almost in sync with the decreased long-term interest rate of 0.76 percent,” explains John Romain. “The question is to what extent we can expect further interest rate drops on fixed-rate loans. If you want to build today, I think it would be best to consider a home loan with an annually adjustable interest rate. This means you will pay less interest on that loan in a few years: expectedly 1.5 to 2 percent less.”

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Read more on Spaargids.be:

How many cents can you put in your savings account before you pay withholding tax?

Cheaper refinancing home loan from your own bank

Useful if you change homes, but how expensive is a bridging loan?

This article was brought to you by our partner Spaargids.be.
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Tags: ECB interest rates banks quickly reduce savings interest rates MyGuide


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