The importance of the comparison becomes clear when you look at the interest surcharges that are calculated for interest rate hedging for term loans. So it’s about the calculation: how high are the loan interest rates (of course the annual effective interest rate!) Including the surcharges for the preferential interest rate agreement? How to calculate loan interest, what a loan is currently costing and how you can reduce interest costs. Now you can find out what the loan interest rates offered by the various banks are. Since the loan offers are sorted according to the amount of the annual percentage rate, the cheapest credit is shown at the top of the list.
The key interest rate in the dollar area has been at an absolutely low level since the reporting date in 2016. But what at first glance looks very cheap, especially for the debtors, has a whole range of consequences for the domestic economy. The main refinancing rate determines the conditions under which credit institutions can receive new central bank funds from the Fine Bank.
For example, if a lender wants to grant a loan, they need adequate refinancing because they first have to have the equity capital to grant the loan. In addition to private investors, the Fine Bank is also available as a source of supply. There, the credit institutions can raise funds and continue to invest with better interest rates. Immediate consequence: credit institutions get very cheap new business.
The deposit strategy is the deposit rate for credit institutions with the Fine Bank. If, at the end of a working day, a bank company has balances which it has not invested in other banking activities or which it has lent to other credit institutions, it must hold these in a central bank account. Immediate consequence: Currently, credit institutions have to pay mandatory interest on balances with the Fine Bank.
Immediate consequence: it is cheaper for credit institutions to take equity from the Fine Bank than to have a credit balance there. The impact of the Fine Bank’s interest rate policy on companies, credit institutions and households varies widely. Expenditure (consumption): Private households spend a large part of their wealth. From a purely economic point of view, household expenditures are to be interpreted entirely as consumption.
Do not spend the cost-benefit ratio (saving): If part of the available profit is not exhausted, the economy calls this saving. Households can put the capital in credit institutions, take it under the pillows at home, or invest in other investment opportunities. Interest rates play a very important role in making decisions about whether to save or not.
It is therefore particularly worthwhile to save costs, since high yields can be expected. Household willingness to borrow is also falling due to the rising interest rates on loans. Low key interest rates Lower interest rates ensure that interest rates for sight deposits also fall.
This will reduce households’ savings rate and ensure that they use up more. Cheap interest rates on loans also ensure that individuals get more loans to meet their consumption needs. Due to the currently very low interest rates, private households are therefore confronted with the fact that savings behavior has hardly any effect.
On the other hand, loans tend to get cheaper, which stimulates consumption. This is also reflected in the statistics, as GfK’s consumer climate index rose for the third time in a row in January 2017 and stands at 10.2 stars. In addition to private consumption, the investment activity of companies is one of the most important drivers of an economy.
Low costs: With generally low interest rates, companies can also raise equity on favorable terms. However, the low investment costs are a reason to increase investment activity. Low opportunity costs: Note: Low interest rates reduce the willingness to save of private households, so that after a certain time less funds are available for investments.
However, the increasing consumer goods demand from private consumers ensures that companies will increase the revenues for their products and services after a certain period of time. Commercial credit institutions are directly influenced by the Fine Bank’s interest rate policy and also act as transmitters of the new conditions. The following overview shows how the individual key interest rates affect credit institutions and how they pass them on to the relevant project participants: The key interest rates:
The credit institutions have free capital procurement because they are not dependent on savings deposits and therefore on lower interest rates for savings deposits. Due to the very low capital procurement costs, the interest rates for loans to acquire new customers are reduced. This affects both individuals and companies.
Credit institutions must raise interest rates of -0.40% on deposits that they cannot use for other banking activities. Some banks even impose fines for large deposits. This can make loans even cheaper. Marginal refinancing rate of 0.25% Short-term debt capital can be obtained at an advantageous interest rate, since the credit facility is positive, credit institutions with a surplus like to lend their equity to others very quickly.
If a house bank borrows money from the Fine Bank, it will be restored. Under certain conditions, a higher volume of money can lead to an increase in inflation. This reserve cannot escape from the credit institutions and it forces the commercial banks to deposit funds with the central bank. With its low interest rates, the Fine Bank is ensuring that prices tend to increase.
However, strong impetus has so far failed to materialize as credit institutions’ capital demand has not been as strong and creditworthiness requirements for lending to individuals and companies have been tightened. Low interest rates – what is the risk of speculative bubbles? Because the low interest rates are considered one of the reasons over a longer period of time, it is very easy to point out the difficulties involved.
The procedure is often as follows: first: low interest rates cause low financial expenses. secondly, interest money is becoming less interesting for investors and they are looking for countermeasures. Lower interest rates on loans and the restriction of investment alternatives have led to an increased demand situation on the property market. Many properties are also co-financed with cheap loans for investment purposes.
Because of the low credit conditions, buyers are still willing to raise prices and take risks by taking out loans. Due to the continuing high demand for property, the property price continues to rise. The fact that the demand for real estate is falling (it no longer pays off) is due to the exaggeration of the prices. Some of the prospective buyers have taken out loans and can no longer look after them with the slightest economic change. Due to the failure of loans and foreclosures, property prices suddenly drop, and further loan projects are no longer adequately secured due to the generally lower exchange rates and are threatened with default.
Because excessively low interest rates can also artificially keep companies that cannot otherwise stay on the ground. Conclusion: Low interest rates can help an economy achieve higher economic growth. This promotes the willingness of private households to consume and lowers investment activity.
For private individuals, for example, this means that savings are hardly worthwhile, while outside financing is possible on very advantageous terms.