Falling key interest rate: Banks are reducing interest rates on savings

Non-rentable savings account

Banks pay less interest on savings – and earn more at the same time

With the key interest rate, savings interest rates also fall. The trend is likely to continue. But savers had strong leverage at hand.

Published today at 6:14 p.m

Savings interest rates are falling at banks.

Photo. Gaetan Bally (Keystone)

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Shortly:

Savings interest rates currently only average 0.52 percent. At the end of last year it was still 0.8 percent.
A further cut in the key interest rate is expected in December. This is likely to put further pressure on interest rates.
Since customers do not change banks, banks are not under pressure to adjust their fees.

This is bad news for savers. The online comparison service Moneyland.ch has compared the current savings interest rates of Swiss banks. The bitter realization: savings interest rates have fallen in recent months. On average, adults only receive 0.52 percent on savings accounts in Swiss francs. At the end of 2023 it was still 0.8 percent on average.

The reason for this: The Swiss National Bank has lowered interest rates and the banks have followed suit. There is no trend reversal in sight. For the next interest rate decision in December, it is expected that the key interest rate will fall again. Savings interest rates will continue to come under pressure.

Many banks are dying out because savers are reluctant to close their accounts. Adriel Jost, economist and fellow at the Institute for Swiss Economic Policy at the University of Lucerne, explains: “When key interest rates rise, banks can expand their margins because they do not adjust savings rates as quickly as money market rates: customers are sluggish, which allows banks to do less .” to react quickly to the changed interest rate environment.” This increases the interest margin.

Many customers do not know the conditions of their bank and therefore do not know that if they changed banks they would pay fewer fees and could get a better interest rate. This is shown by a survey published in the spring by the Lucerne University of Applied Sciences.

Now interest rates are falling again. Then the opposite phenomenon occurs. “The lack of pressure from customers allows banks to adjust their savings interest rates relatively quickly, along with the money market interest rates, so that they do not have to make any compromises on the interest margin,” says Jost. Things will only become more difficult for banks’ interest margins if key interest rates fall below zero. “Because they then want to adjust their savings deposit interest less or no longer in order not to lose retail customers – and to earn money with these customers through fees or other products.”

In summary: When key interest rates fall, banks pass this on to savers and reduce interest rates more quickly than if they rise. Then, on average, you will raise savings interest rates less quickly.

Inflation eats up savings interest

To be fair, it is also important to pay attention to the real interest rate. This is the interest that savers are left with when inflation is deducted. The fact that the key interest rate is now falling again has to do with the fact that inflation has fallen significantly in the last few months.

However, inflation of 0.6 percent is still higher than the average interest rate on savings accounts. Inflation continues to eat up interest on savings.

Customers should therefore compare their conditions. “Despite low average interest rates, there are always large differences in interest rates between the various savings accounts,” says Benjamin Manz, Managing Director of Moneyland.ch.

There is still 1.5 percent per year on the Compte Epargne Plus of the Caisse d’Epargne d’Aubonne and the Steinbockkonto Plus of the Bank EKI, 1.4 percent on the Boost savings account of the Crédit Agricole next Bank and 1.4 percent on the bank’s participation savings account WE 1.3 percent.

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Jorgos Brouzos is the head of the economic team. He mainly reports on the Swiss financial center and the raw materials sector.More info@jorgosbrouzos

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