- On 12 September the ECB cut rates again by a quarter point, bringing the deposit rate to 3.5%.
- Euribor had been falling for months, and variable-rate mortgage payments were starting to show it at reviews.
- For savers with money in deposits, returns were starting to fall: it is worth reviewing the strategy with an adviser who knows the full situation.
On 12 September 2024, the European Central Bank cut interest rates again by a quarter point, bringing the deposit rate to 3.5%. It was the second cut in a cycle that had begun in June, and it confirmed that the trend towards somewhat cheaper money was serious. Euribor, for its part, had been falling for months.
For many families, this news comes down to two very concrete questions: how much the mortgage payment will fall and what will happen to the money they have saved. The answers depend on the type of product, the review date and the term of deposits, and are not the same for everyone. It is worth understanding the mechanism in order to plan realistically. This note reviews both questions and suggests some simple checks.
What changes in the mortgage
Euribor, the usual benchmark for variable-rate mortgages, is the channel through which such decisions reach families, and payments were starting to show it at reviews. Each mortgage is reviewed on a specific date, and that is when the new value of the index is passed on to the payment. It is an automatic mechanism, although the effect is felt with some delay after the central bank’s decision.
This means relief arrives in stages. Those who reviewed their mortgage recently will see the effect later than those who will do so in the coming weeks, and the resulting payment also depends on the margin agreed with the lender. It is worth checking the deed or the latest statement for the date of the next review and estimating realistically how much the payment may change.
The other side: savings
For savers with money in deposits, returns were starting to drop. When official rates fall, the interest that banks offer on term money tends to fall too, and what once looked like a good offer may stop being one. It is a logical consequence: money costs less and so less is paid to attract it. Deposit rates are set by each bank, and not all react with the same speed or the same intensity.
A deposit already contracted normally keeps its rate until maturity, but renewals will be made on different terms. That is why it is worth checking in advance when deposits mature and comparing the alternatives available, without being carried along by the inertia of renewing with the same bank. Differences between offers can be significant, and so can differences in term and availability. A somewhat higher return in exchange for locking money away for longer may or may not be worthwhile, depending on each household’s needs.
What to review
It was time to review the strategy: compare the returns on deposits, consider how much liquidity is needed in the short term and review the mortgage terms, with the help of an adviser who knows the family’s full situation. The combination of debt and savings is different in each household, and there is no solution valid for everyone. What is excess liquidity for one family is an essential reserve for another.
A simple exercise is to list the maturities for the next twelve months, of both debts and deposits, and estimate how the balance between what is paid and what is received will change. If the result improves, it is worth deciding calmly what to do with the margin freed up; if it worsens, it is the moment to adjust the budget before the problem appears. Doing so at fixed intervals, for example every six months, helps take the pulse of the situation without obsessing over every piece of news.
Rates move money around, though not always in favour of whoever leaves it idle.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
