The European Central Bank (ECB) made a historic movement in interest rates on Thursday. For the first time in the history of the ECB, it was decided to raise interest rates by 0.75 percentage point to 1.25 percent. Further rate hikes were also announced. What does the rise in interest rates mean for savers and borrowers? crown.at clarified.
0.75 percentage point: that doesn’t sound like much, but it’s actually the biggest rate hike in the history of the ECB. Interest rates had already been raised – for the first time in 11 years – in July, but “only” by 0.5 percentage point.
Borrowers are facing more expensive times
The interest rate hike will at least please savers, but borrowers will certainly face more expensive times. Because: Banks generally raise the borrowing rate much faster than the savings rate. Borrowers with a variable rate loan are already noticing this.
So what should borrowers expect in the future? Will the loans become more expensive by the same amount, ie by 0.75 percentage point? “It depends on whether you have a fixed or variable rate loan. Consumers should keep a close eye on this. If you have a loan with a variable interest rate, you have to be prepared for it to become more expensive,” explains Gabriele Zgubic, consumer lawyer at the Chamber of Labor, in the Ö1 “Morgenjournal” on Friday.
Credit: is it worth switching to a fixed interest rate?
The reference interest rate plays a role in variable-rate loans. “If it rises, for example the 3-month Euribor, then the borrowing rate will of course go along,” says Zgubic. Would borrowers still have a chance to switch to fixed-income financing in the near term? Zgubic: “You can talk about it with your house bank, but banks will of course take the announced interest rate increases into account. You have to look at that very carefully from an economic point of view – including the additional costs.”
What to do if you can no longer pay the credit installments?
The fact is that inflation affects many people. If life becomes more and more expensive and then the credit interest rate also rises, it can become tight very quickly. Zgubic advises: “You should never bury your head in the sand, but try to get in touch with the bank to discuss what to do if you can no longer pay the loan. You have to take a close look at all expenses and then see what you can save on.”
“Savings still very close to zero”
And what does the historic ECB rate hike mean for savers? Not much for now. Because even after the first ECB increase in July, many banks did not immediately react to the savings rate. Zgubic: “If you look at the daily savings rate, it is still very close to zero. Not much has changed there.” However, an existing savings contract also contains an interest rate increase clause. “You definitely have to know how it is structured and how the interest rate changes. But there is a very big discrepancy between interest rates on loans and savings.”
That is why the AK consumer lawyer advises those who want to save for the time being to wait until further interest rate increases. “You can always change due savings accounts immediately, but you also have to keep an eye on the expenses. Right now I would just observe the interest rate landscape and compare products. Because the range of interest rates has already been given.”
Source: Krone
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
