Captivity
What exactly are those consequences? We see this in everyday life. If you get a mortgage now, you’ll have to pay a lot more in interest than you did, say, a year ago. For some people who have previously had a mortgage, the fixed interest period has now ended or will end soon. They have to get a new mortgage with a higher interest rate more often – Refinancing This is called. The fixed rate period will end for 13 percent of people with a mortgage in the next two years. For some people, this will increase monthly costs.
On the other hand, we see interest rates on savings rising. For the first time in a long time, saving money is paying off. However, it is striking that savings interest rates are not rising as quickly as mortgage interest rates. Especially when we consider that banks now earn 4% interest on the money they deposit with central banks, just over 1% interest on savings is in stark contrast to that. How is this possible?
Two sides of the balance sheet
To do this, you have to look at both sides of the bank’s balance sheet. On the one hand there are mortgages issued by the bank. The bank charges mortgage interest as compensation for this. On the other hand, there are the savings that we deposit with the bank and for which the bank pays us interest.
Banks change the savings interest rate to a lower extent than the mortgage interest rate. This is because banks only get higher interest rates on new mortgages. Interest on existing mortgages – which constitute by far the largest share of all mortgages issued by banks – are often fixed for a longer period. The bank has not yet received higher interest on these real estate loans. So the higher income comes only from new mortgages.
Most people get a variable interest rate on savings, which means you’ll notice straight away if your interest rate increases. If interest on savings rises, this applies to almost all savings.
So the bank must end up paying more interest on a large portion of savings, while it only receives more interest on a small portion of mortgages. That’s why mortgage rates rise faster than savings rates.
Ultimately, the banks themselves decide the relationship between savings and mortgage interest rates. This is why one bank offers a higher interest rate on savings than another bank. It is up to customers to decide which bank they are most satisfied with.
