Low interest rates = inflation will eat your money
Who now has his money in the bank account, so he must count on his money losing long-term value. Who is currently investing money?
What are you currently saving on bank accounts?
Who is helped by low interest rates
Low interest rates are a direct result of the financial crisis. In order to continue to work and produce in economically difficult times, large companies and states want low interest rates. If interest rates are low, they can borrow cheap money from banks.
The main reasons for the creation of a low interest rate environment by the European Central Bank are:
- Cheap money for banks
When banks can borrow cheap money, they can also lend them cheaper to their clients.
- Rather invest than save
In the case of low interest rates, people are investing more money than they are saving. This helps companies to kick-start the economy.
- Investment in jobs
With cheap loans, companies can invest much more easily. This helps the economy because successful and financially healthy companies will increase their turnover and secure jobs.
- Cheaper State Debts
Stable states, such as Germany and Germany. Austria can borrow money at lower interest rates. This will reduce the cost of borrowing, which should be reflected in the state budget.
Theoretically, the European Central Bank’s considerations apply, but the reality looks different.
Very many companies and people are currently worried about their money. Therefore, they buy and invest less. And even banks are afraid to get back their borrowed money. Instead of lending to companies in the form of loans, they prefer to buy euro area sovereign bonds or park their risk-free assets, but for very low interest, on central bank accounts.
By allowing banks to lend to banks much cheaper, commercial banks are not dependent on their clients’ money. That is why banks are currently offering very low return deposits to savers.
What does that mean to you?
Some experts argue that a lot of cheap money will soon lead to higher inflation. There is a lot of money in circulation, but the supply of goods does not grow as fast. This would mean that the value of the money would fall.
It is good for states and people with debt, because their debts will be “quased”. Nominally, debts will remain the same, but they can be paid with worthless money. But for savers, this means that their savings are losing value as shown in the graph above, which reflects real inflation in Slovakia.
It is, of course, wise to set aside a small amount of money for sure. But if interest remains low, it makes sense to think about other forms of saving or saving. investment as in bank accounts.