Saving is less worthwhile after another interest rate cut
Published: Friday, Jun 21st 2024, 14:01
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Bad news for savers: after the SNB's latest interest rate cut, many banks are once again offering lower interest rates for those who deposit their money in the bank. For mortgage borrowers, however, the development is a blessing.
For years, savers have hardly received any interest on their money. This recently changed again with the interest rate turnaround initiated by the SNB in 2022. Last year, banks significantly raised their interest rates on savings and pension accounts again.
However, the upward trend came to an abrupt end with the SNB's first interest rate cut in March of this year. Even then, some banks reacted with interest rate cuts. With the second SNB rate cut to 1.25 percent on Thursday (yesterday), a number of other banks will follow suit, according to a survey of Swiss banks conducted by the news agency AWP.
Interest rate cut already partially decided
Some banks have already reacted immediately to the SNB's latest interest rate cut and announced a reduction in interest rates on savings deposits - very few banks pay interest on private accounts anyway. Among the major banks, Raiffeisen is the most notable. However, the Raiffeisen Group only makes a recommendation to the individual cooperatives, which are then free to decide on the specific structure.
After the first interest rate cut in March, Raiffeisen initially kept the recommended interest rate stable. With effect from August 1, the recommended interest rate for savings deposits will therefore fall comparatively significantly. The Group now only recommends an interest rate of 0.70 percent for member savings accounts, down from 1.10 percent previously. For deposits over CHF 100,000, the interest rate has fallen from 0.70 percent to 0.45 percent. The reduction is also up to 0.5 percentage points for other types of savings accounts.
Valiant Bank had initially waited and is now passing on the interest rate cuts to customers on July 1 on payment, savings and pension accounts, as it said on request. The Thurgauer Kantonalbank is also lowering interest rates on savings accounts. As of July 1, the interest rates on the bank's savings account will fall by 0.15 to 0.25 percentage points. For the Premium savings account, the interest rate will fall for the second time this year. So far this year, the drop amounts to 0.35 percentage points.
Many banks are still monitoring the situation
Many of Switzerland's larger banks are holding back on immediate interest rate adjustments for the time being. "Following the second SNB interest rate cut on June 20, we are continuing to monitor the development of capital and money market rates, as well as the rest of the market environment," writes Migros Bank, for example. Postfinance, Berner Kantonalbank (BEKB), Zuger Kantonalbank (ZGKB) and Hypothekarbank Lenzburg responded similarly.
Luzerner Kantonalbank (LUKB) has not yet made a decision on interest rates following an initial rate cut in May. Due to the expected lower interest income, it will "further reduce interest on customer balances", according to LUKB.
UBS also adjusted its interest rates at the beginning of May. The bank did not wish to comment on possible further interest rate cuts at this time.
Some cantonal banks refrained from lowering interest rates after the SNB's first interest rate decision in March. Examples include Zürcher Kantonalbank (ZKB), Berner Kantonalbank (BKB), St. Galler Kantonalbank (SGKB) and the BEKB subsidiary Bank Cler. Following the SNB's renewed interest rate hike, none of the banks ruled out lowering interest rates at a later date.
Digital banks still pay comparatively high interest rates
The so-called digital and neo-banks continue to pay comparatively high interest rates. However, interest rates are also under pressure here. For example, customers of Willbe, a subsidiary of the Liechtensteinische Landesbank LLB, are now receiving 0.2 percent less on short-term deposits.
The Bank Cler subsidiary Zak has not yet made a decision on future interest rates. The only thing that is certain is that the newly launched savings account will continue to pay a comparatively high interest rate of 1.3 percent, the bank announced.
Neo-Bank Yuh, which is half owned by Swissquote and half by Postfinance, has deliberately not passed on the first key interest rate cut to customers, even though this has reduced its margin, it announced. However, the effects of the new key interest rate cut are still being examined.
Saron and new mortgages become more favorable
For many homeowners, falling interest rates are good news. In particular, the interest rates for Saron mortgages, which are based on the prime rate, fell immediately after the interest rate decision. The Raiffeisen banks, for example, reduced the interest rates for Saron mortgages as early as June 21, i.e. one day after the interest rate decision.
Existing customers will have to be patient, however, as the "backward view via the Compounded Saron means that the interest rate adjustments reach the customer with a certain delay", Valiant points out. The Compounded Saron is usually calculated from the average of the daily Saron rates over a period of 3 months and therefore has a certain time lag.
According to Raiffeisen, no major changes are expected for longer-term fixed-rate mortgages. The capital markets have already "priced in" a further reduction in key interest rates this year.
According to ZKB, customers could benefit directly from new contracts. According to the bank, the lower base interest rate "currently has a reducing effect on the customer interest rate for new fixed-rate commitments".
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