Recent interest rate changes and high inflation are causing capital market returns to increase, with some banks offering 4 percent interest on call money accounts. However, this still does not fully offset inflation, and investors need to be aware of the current financial landscape.
The European Central Bank’s (ECB) interest rate turnaround has played a significant role in shifting capital market and savings rates upwards. Since July 2022, the ECB has raised interest rates in the euro zone by 4.5 percentage points. This has led to a rise in the yield on ten-year German government bonds, reaching above 3 percent for the first time since 2011.
While the latest interest rate hike was unexpected, it is influenced by various factors beyond just central bank decisions. Inflation expectations, economic development, creditworthiness, and other global economic conditions also play a role in determining interest rates. Rising interest rates in the USA are expected to impact European interest rates as well.
The increase in interest rates has had consequences on other financial market segments, such as stocks and gold prices. As some banks offer higher interest rates on call money accounts, it is important for investors to understand the relationship between returns and risk. Deposit protection schemes provide a safety net for customers, but they should still be mindful of the risks associated with different banking institutions.
Ultimately, investors need to stay informed about the changing financial landscape and make decisions based on their risk tolerance and financial goals. By understanding the factors that influence interest rates and returns, investors can make more informed choices about their investments in a dynamic market environment.