How central banks influence savers' behavior

First things first: What is the deposit rate?

Banks in Europe have the option of investing money with the ECB at very short notice. In the past, banks then received interest on these deposits. In a sense, the short-term investment of banks' money that was not needed for the time being represented a form of financing. Banks invested a few million euros overnight with the ECB and received an amount raised in line with the deposit interest rate on the next business day. By temporarily parking money at the ECB, they avoided extra costs and cumbersome that resulted, among other things, from storing the money in cash.

The problem here is that money that is hoarded by banks is clearly not part of the real money circulation. The ECB has pursued two priority objectives in the recent past. On the one hand, to increase inflation and, on the other hand, to stimulate the European economy. In order to create the right conditions for achieving these goals, the ECB has repeatedly adjusted the adjustment screws in monetary policy. This is also the case with the deposit interest rate. This is now -0.5%. For banks, this means that they have to pay more when they invest money with the ECB. The deposit interest rate has therefore become a penalty interest rate. And what does that mean for you?

Effects of the deposit rate cut

To put it bluntly, reducing the deposit interest rate from -0.4 to - 0.5% is nothing more than an increase in the penalty interest rate. This negative incentive is intended to drive banks to stop hoarding their money but to lend it to companies and private individuals in the form of loans. The reasons for this are obvious, because when more people borrow and invest, the economy is stimulated. For people who want to borrow, this is good news. In order not to be affected by penalty interest rates, banks grant loans on more favourable terms. But how does the ECB's monetary policy influence savers' behavior? In the long term, the ECB's low interest rate policy is poison for savers. Because anyone who saves money in bank accounts not only receives no interest on their reserves, but actually pays on top of that, as the inflation rate of around 1.2 percent eats up the mini returns. The ECB's monetary policy is not only changing the behavior of banks, which are now issuing cheap loans more frequently, but also the behavior of savers, who are now investing in assets such as real estate.

Affordable investment opportunities thanks to ECB policy

You want to save, i.e. build up wealth, but you've already noticed that bank accounts haven't helped you with that for a long time. That's a good thing, because the first step towards improvement is always the recognition that something needs to change. Fortunately, thanks to ECB policy, you have a whole range of interesting opportunities here. Because now that banks are no longer parking money due to high penalty interest rates, they are issuing cheap loans. Construction financing in particular is available on good terms today. And since the real estate market in Germany is still buzzing, investing in your own house or condominium is more worthwhile than ever. Rental prices are rising, forecasts for the performance of real estate are consistently positive. The right time to join is now.

In addition to taking out loans yourself, you can also invest in stocks or open-ended real estate funds. Because investors are also feeling the benefits of low interest rates. As more people borrow cheap loans from banks to buy real estate, demand in the real estate market is increasing. This in turn increases real estate prices. So if you invest in real estate funds, you benefit directly from the low interest rate environment that the ECB has created. You have much better cards for building up your wealth here than with old-fashioned and unprofitable savings accounts. Speaking of unprofitable: Although gold is an attractive investment option due to its general stability in value, it does not yield any current returns.