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The meetings of the Capital Lender are always eagerly awaited. Whether the meeting council decides to keep the base interest rate stable, to increase or decrease it and by how many counters has a direct impact on the current savings and lending rates of German banks. This key interest rate, which has been at four percent for some time now, is the interest rate at which banks can borrow money from the central bank. The CL base rate therefore has a direct impact on banks. If the interest rate is low, the financial institutions can get money cheaply and are also able to offer their customers lower loan interest rates. On the other hand, if the key interest rate rises, consumer loans will also become more expensive.

Raising interest rates

Raising interest rates

It can be observed that the banks are raising loan interest rates very quickly, while raising interest rates with a time delay. For example, one often sees no higher savings interest on his overnight accounts in the first weeks after an interest rate hike by the CL. Many banks take their time in raising interest rates. Eventually, that increases their profit margin. The central bank’s setting of the interest rate does not affect all investments. Long-term loans and time deposits are not affected by the CL’s decisions. Anyone who has taken out a loan with a fixed interest rate must pay it over the entire term, regardless of how the current loan interest rate develops. This can be disadvantageous if interest rates fall in general, but is advantageous if interest rates rise again.

Low interest rates in recent years

Low interest rates in recent years

That is why it has repeatedly been advised to take out loans in recent years. Interest rates were at a very low level until a few years ago. Customers who had concluded credit contracts at the time can still benefit from their contract for many years if interest rates rise again. The key interest rate in the credit area mainly affects short-term overdraft facilities in current accounts. In the case of savings interest, the interest rate decisions of the CL also only affect short-term deposits, i.e. call money accounts and possibly current accounts, if interest is paid on them at all. Fixed-term deposits over one or more years with a fixed interest rate are not affected. Again, this can be an advantage or a disadvantage, depending on whether market interest rates rise or fall.

For example, if you set your money a long time ago at the low interest rate usual at the time a year or two ago, you’re in a bad position. For new investments, he would get significantly more interest. However, if someone invests their assets for several years now or in a few months, they may be able to benefit from falling interest rates. On the one hand, the CL wants to raise the key interest rate to curb high inflation; on the other hand, she is concerned about the economy in Germany, which is extremely dependent on the global economy due to the high export rate. The global economy is reportedly on the verge of a downturn, which could necessitate a cut in the key interest rate.

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