Real interest rates in Germany to -2.5%

Savers are increasingly footing the bill for the corona crisis. For example, real interest rates in Germany fell to a new low of almost -2.5% in May. This is the purchasing power that you lose as a saver with a German 10-year government bond after correction for inflation. And that is not a new trend, because real interest rates in many European countries have been negative for much longer. In Germany, real interest rates have been below zero for 62 months in a row, which means that savers have been losing purchasing power for years.

The cause of negative real interest rates is twofold. A flight to safe havens and the continued demand for government bonds as safe collateral have caused interest rates to fall further. During the corona crisis, several European countries were even able to borrow at negative interest rates, with the German 10-year yield reached an all-time low of -0.9% in March 2020. Since then, interest rates have risen again, but are still negative at -0.19%. At the same time, inflation has risen sharply in recent months, reducing the purchasing power of money.

Negative interest rates

The fact that real interest rates in several European countries are negative is not news. But now that banks are increasingly passing on negative interest rates, savers are also starting to feel the pain. As of this month, several banks in the Netherlands have lowered the threshold for negative interest rates lowered, in most cases up to €100,000. This means that the value of savings above this limit evaporates rapidly.

At a real interest rate of -2.5% (2% inflation and 0.5% negative savings rate), savings will lose more than 20% of their purchasing power in ten years' time. In addition, savings above €100,000 are not covered by the deposit guarantee scheme. So you pay interest, but you don't get any security in return if a bank fails.

Negative interest rates are a form of financial repression, which is reinforced by the interest rate policies of central banks. The ECB charges a negative deposit rate of -0.5%, while the Swiss central bank charges as much as -0.75%. These are the rates that banks pay when they have to deposit excess savings with the central bank.

Savers who do not want to pay interest must therefore look for alternatives. Think, for example, of precious metals such as gold and silver, assets that are better able to hold on to their purchasing power in the long term than money.

Real interest rates in Germany (Graph via @Holgerschaepitz)

This contribution was made from Geotrendlines