How will the European Central Bank's (ECB) deposit rate hike to 4% affect the term deposit market?

Eurozone inflation remains high

According to Eurostat, the annual inflation rate in the euro area was 5.3% in August. This means that the prices of goods and services in the eurozone are rising much faster than people's incomes.

To combat inflation, the European Central Bank (ECB) raised its deposit rate to a record high of 4% on 20 September 2023.

The ECB's deposit rate is the interest rate that banks pay the ECB to deposit their excess reserves. Raising this rate means that banks will earn more money from the ECB for storing money. This, in turn, should lead to higher interest rates on term deposits offered by banks to individuals and businesses.

How will this affect investors?

The increase in the deposit rate will lead to higher yields on bank deposits in the EU. This will make them more attractive to investors looking for safe, high-yielding investments.

Here are some specific benefits:

• Higher yields. Banks will be forced to raise interest rates on term deposits to attract customers. This means that investors wishing to open a term deposit account with banks in the EU will receive higher interest income.
• Improved terms. Investors who already have term deposits in EU banks will also benefit from the rise in interest rates: they will be able to earn more on their savings.
• Reduced risk. Time deposits are considered one of the safest ways to store money.
The rise in interest rates makes them even more attractive to investors looking for a safe way to preserve their savings and earn an income at the same time.

An example:
Before the deposit rate increase, a bank was offering 3% interest on a term deposit. After the rate hike, it might be 6%. This means that an investor with €10,000 in this bank will receive €600 in income per year instead of €300 before the rate hike.

The ECB's increase in the deposit rate to 4% is a positive development for investors wishing to open a term deposit in banks in the EU. It will allow them to earn more on their savings, improve the conditions of their deposits, and reduce risks.

The ECB's rate hike is a step towards a more restrictive monetary policy. This could help to curb inflation, but it could also have a negative impact on the economy.

You can find, compare, and select the most current and profitable fixed-term deposits from over 1,000 banks in the EU on our website, PickTheBank.eu.