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Why are interest rates so low?

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If you put money in a savings account today, you have to expect that the money there will be worth less over time.
If you spend it straight away, you will have more of it at the moment.
What do I currently gain from saving?
Currently, interest on savings accounts is around 0.02%. This means that if you have € 1,000 in your savings account for a year, you will receive 20 cents interest, of which you have to pay 5 cents to the state. This tax is called capital gains tax (KESt). Inflation is normally around 2 percent and has been even higher since the war in Ukraine. This means that you currently (3.2 % - as of February 2025) earn around 15 cents in interest in a year, but your purchasing power in relation to € 1,000 decreases by around € 32. That makes € 968.15.

Who benefits from low interest rates?

Low interest rates are a direct consequence of the financial crisis. In order to be able to continue working and producing even in difficult economic times, companies and governments want low interest rates. When interest rates are low, they can borrow money cheaply from banks. The European Central Bank sets the interest rate for the eurozone with its key interest rate. This is the interest rate at which banks borrow and lend money. The central bank's four main reasons for low interest rates are currently:
1
Cheap money for banks. If banks can borrow money cheaply, they can also lend it to their customers more cheaply.
2
Better to buy than save. When interest rates are low, people prefer to spend their money rather than save it. This helps companies and boosts the economy.
3
Investing in jobs. Favorable loans make it easier for companies to invest. This helps the economy, as successful and financially healthy companies increase their turnover and secure jobs.
4
Cheaper government debt. Stable countries such as Austria can borrow money at low interest rates. This reduces interest expenditure, which has to be taken into account in the national budget.

The reality

Theoretically, the central bank's considerations are correct, but the reality is different. Many people and companies are worried about their money at the moment. This is why they are buying less or investing less. And banks are also afraid of not getting their lent money back. Instead of granting loans to companies, they therefore prefer to buy government securities from safe countries such as Austria or Germany or "park" the money at the central banks without risk - but at very low interest rates. However, because the central banks are providing the banks with a lot of cheap money, the commercial banks are no longer reliant on savers' money. This is another reason why commercial banks are currently only offering savers low interest rates.

What does that mean for you?

Inflation has already risen due to the high amount of money in circulation and the stagnating supply of goods. As a result, our money is losing value. This is good for countries and people with debts, as their debts are effectively "inflated away". Although the debts remain nominally the same, they can then be repaid with less valuable money. For savers, however, this means that their savings lose value in real terms. Of course, it is smart to have some money on the side as security. However, as long as interest rates are low, it makes sense to think about other forms of saving and investing.

FAQ

At the moment, savings accounts barely earn any interest – around 0.02% per year. This means that for €1,000 you only earn around 20 cents in interest, of which you also have to pay capital gains tax. At the same time, your money loses purchasing power due to inflation, meaning that you can afford less in real terms after a year.
Low interest rates are a consequence of the financial crisis and economic uncertainties. The European Central Bank is keeping the key interest rate low so that banks can borrow money cheaply. This is intended to promote investment, stimulate the economy and help countries to finance their debts more cheaply.
Governments and companies benefit because they can borrow money cheaply. Debtors also benefit, as their debts lose value in real terms due to inflation. For savers, on the other hand, low interest rates are disadvantageous because their savings hardly grow and at the same time lose purchasing power.
If inflation is higher than interest rates, your money loses value in real terms. This means that you can buy less with the same amount of money than before. That’s why it’s important to think about alternative forms of saving and investing, especially if you want to build up long-term wealth.
Yes, it always makes sense to have a financial cushion for emergencies. Even if a savings account currently pays little interest, it offers security and quick access to your money. For amounts in excess of this, it is worth looking at other options such as funds, ETFs or other forms of investment.

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