Households
What exactly are those consequences? We notice this in everyday life. If you take out a mortgage now, you have to pay a lot more interest than, for example, a year ago. And for some people who have previously taken out a mortgage, the fixed interest period is now or will soon expire. They have to take out a new mortgage at an often higher interest rate – refinance that’s called. The fixed interest period will expire 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 pays off. However, it is striking that savings interest rates are not rising nearly as quickly as mortgage interest rates. Especially when you consider that banks now receive 4 percent interest on the money they deposit with central banks, just over 1 percent 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 the two sides of a bank’s balance sheet. On one side are mortgages that the bank has issued. The bank charges the mortgage interest as compensation for this. On the other side is the savings that we deposit with the bank for which the bank pays us interest.
Banks change the savings interest rate to a lesser extent than the mortgage interest rate. This is because banks only receive higher interest rates on new mortgages. The interest on existing mortgages – by far the largest share of all mortgages issued by banks – is often fixed for a longer period. The bank does not yet receive higher interest on these mortgages. The higher income therefore only comes from the new mortgages.
Most people receive a variable interest rate on savings, which means that you will immediately notice it if the interest rate is increased. If the interest on savings rises, this applies to almost all savings.
The bank therefore ultimately has to pay more interest on a large part of the savings, while it only receives more interest on a small part of the mortgages. That is why mortgage rates are rising faster than savings rates.
Ultimately, banks themselves decide the relationship between the savings and mortgage interest rates. That is why one bank will offer a higher interest rate on savings than another. And it is up to customers to determine which bank they are most satisfied with.