Is the time for high rates on term deposits already over?

To: November 15, 2023 3:30 pm

After a long period of low rates, many savers are happy that current and restricted accounts are once again offering consistent interest. But in recent days some banks have reduced their offers again.

For years it was not possible to obtain interest on savings accounts, daily deposits and time deposits at German and European banks. This was ensured by the zero interest rate policy of the European Central Bank (ECB).

Since last year, the ECB has dramatically increased key interest rates in several stages. This meant that, for example, rates on housebuilders’ loans increased significantly, but for the first time savers received a corresponding interest rate on their cash. In September of the year, the most important key interest rate in the euro area finally rose to 4.5%.

Many German and international banks have thus attracted savers with generous interest rates. Recently, 4 or even 4% were available for one-year term deposits, as demonstrated by comparative portals such as Biallo, Check24 and Verivox.

Has Klarna announced a breakthrough?

In recent days, however, the end of the increase in interest rates on savings deposits seems to be looming. Furthermore: The Swedish payment service provider Klarna, which is also strongly represented in Germany in the deposit sector, increased the interest rate for one-year term deposits from 4.12 to 3.84 percent and therefore below the 4% threshold. Creditplus Bank, which belongs to the large French bank Credit Agricole, also slightly reduced its one-year interest rate from 3.8 to 3.7%.

Heralds of a turnaround 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 have also used the deposit activity specifically to improve their financial situation.

In recent weeks, however, there has been a flattening of the rate trend for term deposits, “but the interest rates offered should stabilize at this level for the time being. We have even recently recorded new highs in the interest rate range highest interest.”

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

Indeed, several European banks offer interest rates on twelve-month term deposits well above the 4% threshold. The current leader in the Verivox ranking is Portugal’s Banco BNI with 4.50%. Volkswagen Financial Services, a subsidiary of the VW Group, is also a German provider offering just over 4% per year at 4.02%.

Even the best one-year rates on the Biallo consumer portal are well above the round threshold. If you want to take advantage of an offer from Germany, you can also get 4.30% for twelve months from Isbank, the German branch of a Turkish institution. Even Biallo expert Sebastian Schick currently does not see a reversal of the trend on the market. The average of the Biallo index of term deposits for one year and an investment amount of 5,000 euros is currently 2.63%. A 14-year high of 2.66% was reached on Nov. 8 at 2.66%.

The interest rate pause is not a change in interest rates

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

Only when the European Central Bank puts the interest rate screw in place and starts cutting interest rates will fixed-term deposits be expected to generate lower returns overnight again. However, at the moment there are no signs of this.

Take a look at the long-term terms

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

Wefer, an investment expert at Verivox, currently believes a strategy with two-year fixed deposit terms makes sense. «The ideal would be to take out two fixed-term deposits one year apart», explains Wefer. This means you can take advantage of higher long-term interest rates and still get one of the two investments repaid every year, so savers can react flexibly to changing market conditions when reinvesting.

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