ECB interest rate pause – rising overnight and fixed deposit interest rates for savers

Key interest rates will remain where they are. The deposit rate, which is crucial for monetary policy, will remain at 2 percent. The European Central Bank (ECB) announced this on Thursday afternoon.

The 2 percent applies to money that commercial banks park with the ECB for the short term. There is much to suggest that this will remain the case in the coming months. Economists surveyed by the financial agency Bloomberg believe, by a large majority, that key interest rates for the common currency of 20 countries could not move again until the middle of next year at the earliest. The ECB Council had already left its interest rates unchanged in July. Currently, a kind of fragile equilibrium prevails.

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This doesn't necessarily have to be bad news for traditional savers. According to calculations by the comparison portal Verivox, the national average interest rate for short-term call money is currently just under 1.3 percent. Fixed-term deposits with a term of 24 months are still paying almost 2 percent. However, as recently as late autumn 2023, banks were temporarily offering double that.

But this peak in interest rates was followed by a massive decline, which accelerated again at the beginning of the year. Interest rates on savings accounts plummeted by more than a quarter following a cascade of ECB rate cuts. The average overnight rate slipped to 1.16 percent in August.

However, the downward trend appears to have bottomed out. Interest rates have recovered. Verivox experts even speak of a trend reversal. "The severity of the crash was certainly somewhat exaggerated. Therefore, we are now experiencing a correction," explains Verivox financial expert Oliver Maier.

And what happens next? Given the deposit rate freeze, Maier and his colleagues see "room for further interest rate increases on overnight deposits in the coming weeks."

However, the trend reversal has not yet reached regional banks. With an average of a meager 0.38 percent at savings banks and 0.42 percent at cooperative banks – significantly less than at national banks – nothing has changed here in recent weeks.

Meanwhile, long-term savings accounts have already risen significantly across the board. Those who stash money for 10 years currently receive an average of 2.36 percent nationwide. This already factors in the approaching end of the ECB's interest rate cut cycle, according to Maier.

The mortgage interest rates that home builders have to pay to their lenders are also rising. However, The central bank plays only a minor role here. Rather, the higher yields on multi-year government bonds are playing a role. This is primarily due to the fact that national governments have launched large-scale investment programs for infrastructure and defense, which is causing government debt to rise. Therefore, financial market participants are now demanding higher risk premiums.

According to calculations by the online portal Interhyp, average rates for ten-year mortgages are currently around 3.7 percent. In December 2024, they were less than 3.2 percent. And financial institutions surveyed by Interhyp expect rates to continue rising in the medium and long term.

The background: While inflation in the eurozone is under control at around 2 percent, experts at Commerzbank, for example, believe that, in addition to higher government debt, a new "inflation problem" is also possible, which could also be triggered by government investment programs, which would alarm ECB President Christine Lagarde.

However, she is already deeply concerned about the political turmoil in her home country: a government crisis and fears that national debt could spiral completely out of control. The premiums on French government bonds have risen significantly more than those of other countries.

Speculation is already circulating that the ECB will have to buy bonds to ensure the government in Paris's ability to act. This brings back memories of the financial crisis more than 10 years ago, when Greece had to be massively supported by the ECB.