Interest rate question?

[bonzos]

I have a quick question on inestest rates...if the ecb rate rises some time this year i understand that mortage rates rise with it,but does this also mean that the interest rate on saving will also rise?at the moment the interest on saving is very low when DIRT is deducted.I read an article by eddie hobbs lately which he recons rate will rise alot in the next few years,does this mean that you should be getting decent returns on your saving also?

 

[Lightning]

If ECB rates go up then savings rates will also go up.

In 2010 ECB base rates are expected, by the futures market, to end at either 1.25% or 1.50% so savings rates should only marginally increase this year.

This assumes that Banks will pass on the ECB rate increases to customers. In many cases they will, in some cases they will try not to.

 

[Supergirl]

Bonzos: you should try not to speculate on what and when ECB ratees should be. Reason = you can't predict the future. I would suggest that you decide what investment and or savings approach suits you. Determine the best means of achieving this (price around).

 

[Lightning]

you should try not to speculate on what and when ECB ratees should be. Reason = you can't predict the future

The future direction of ECB rates should be a factor when deciding what savings product to go for. For example, if you believe that a hike in ECB rates will occur over the next 2 years then now might not be the time to open a 3-5 year term deposit product.

It is not hard to see what the market thinks ECB rates will do, the information is readily available.

 

[bonzos]

Im not trying to speculate,im just trying to understand the principles on which these rates the different banks offer is determined

 

[messyleo]

I have to say I can't see the banks passing on any increases in savings rates (My guess would be a 25 point rise in Q4) as there is currently such a spread between the ECB rate & deposit rates at the moment and we should hopefully have a bit more stability in the financial markets at that stage! So OP I would not hold your breath for massive increases in deposit rates!

 

[Lightning]

Banks are under huge competitive pressure to raise further deposits. I think any ECB increase will be passed on with some savings products.

However, If you think ECB rates are going to increase significantly, you are willing to invest long term and you think banks won't pass on the rate increases then you should consider the below product.

Bank of Scotland Ireland: Tracker Fixed Rate Account
2 Years 2.69% (3 Month Euribor + 2.00%)
3 Years 2.94% (3 Month Euribor + 2.25%)
4 Years 3.19% (3 Month Euribor + 2.50%)
5 Years 3.44% (3 Month Euribor + 2.75%)
Note 1: The gross interest rates above are not fixed for the term deposit period. However, the calculation methodology, which is stated in brackets above, will remain the same for term deposit period. BOSI take (reset) the 3 month Euribor rate on a quarterly basis to calculate the gross interest rate.
Note 2: Obviously, If the 3 month Euribor rate drops over the term deposit period your return will be lower than the rates above. If the 3 month Euribor rate increases over the term your return will be higher than the rates above.
Note 3: The above gross interest rate has been calculated by taking the 3 month Euribor rate as at January 1th 2010 which was 0.69% according to the official Euribor website. BOSI locked the rate for 3 months on this date.