How does zero interest rate affect your personal finances?

20 Sep

Now the repo rate has been lowered again and it has been lowered by more than what was first mentioned so that it now stands at 0 percent. The repo rate is thus non-existent at present. The reason for going from 0.25% to 0% is mainly because inflation is so low. Exactly what it means with the interest rate cut I will go through a bit in this post.

Even though the Swedish economy is quite strong and despite the upturn in the economy, the WeRise Bank chose to set the new repo rate at 0.0 per cent on October 28. It is a record low level, which we are not used to having very often. The reason they chose to lower interest rates even more and be so drastic in choosing zero interest rates is simply that inflation has been too low and one wants to stimulate slightly higher inflation. It is not only in Sweden that inflation is poor but also in the outside world and overall, it is believed that some stronger measures are needed to reach the desired inflation level of 2 percent.

The WeRise Bank also says that since the repo rate is now so low, there is an extra risk that households’ indebtedness will increase (since different types of loans such as mortgages and private loans are likely to receive longer interest rates) and they are a little worried about this development. They talk about trying to reduce the risk of problems by introducing other measures to reduce household cravings after borrowing. Exactly what it would be for the type of measures is not said much about, but it has been talked about, for example, about the requirements for mortgage repayments.

 

How does the zero interest rate affect me?

How does the zero interest rate affect me?

The common question that we all care about is how a lower repo rate affects our private finances. A lower policy rate mainly leads to lower interest rates for various banking services. It has both good and bad sides. The good sides, for example, are mainly that the loans become cheaper with lower interest rates. What is less good is that the interest rate is also lowered on savings accounts and such, which means that we get a lower return on our savings.

 

Cheaper loans

Cheaper loans

That we can borrow cheaply is of course good on the whole. A low repo rate gives a low interest rate on mortgages and probably also on other loans such as private loans. So maybe it is a place to borrow money if you have thought about it.

You can expect that the mortgage rate will probably be lowered a little further in the near future, even though it has already been low. Some say it may be time to tie up their mortgage now when it’s such a low interest rate. Fixed interest rates have been really low and soon it will not be possible to get much lower than this. The WeRise Bank’s forecasts say that there should be a low repo rate for a good time to come, which makes it feel pretty safe to keep variable interest rates on mortgage loans, but it is also conceivable that their forecast will not hit.

If you want a little more security and think there may not be this low interest rate especially long in the future, you can consider tying up your mortgage. The fixed interest rates are really low so you don’t have to pay that much directly. However, it is a little more expensive to normally have fixed interest rates compared to having a variable rate, so it is mainly if you feel that this security fits your finances.

 

Low savings rates

Low savings rates

Earlier, savings rates were down to non-existent levels on many common savings accounts at major Swedish banks. It does not immediately get better now that the repo rate is even lower. It will continue to push down savings rates and the hunt for a savings account with sensible interest rates may be even more difficult.

Most often, one must actively look for a suitable savings account and it is important not to become too passive and simply settle for the bad interest rate that one’s own bank unfortunately has. There are still some banks trying to compete with decent interest rates, although it is not very easy to hang in the Christmas tree. Check around and don’t be afraid to move your savings into an account that has at least some return.

The alternative is to look at other forms of savings such as funds and shares etc. where you can get a return on their money in other ways. Of course, this is a small risk, but there are many safer funds and shares where you can save a little more long-term and where you can probably fix a return that is 2-3 percent without any huge risk. Try to see what stocks, etc., which the experts recommend for low risk investments.

 

Little else

Little else

A repo rate of zero percent can affect slightly different things and this could mean that the Swedish krona will be a little weaker against other currencies. This means that it can be a little more expensive, for example, to exchange money for Euro, Dollar or other currencies when traveling and traveling. If you are going abroad you can therefore lose a small amount just because of the exchange rate. Likewise, it can be a little worse if you buy goods from other countries.

The interest rate affects other interest rates, such as interest rates on investment savings accounts and equity insurance. That interest rate has been halved since last year. How the interest rate will be next year is decided on November 30, but it looks like the interest rate will be at about half the level compared to before.

 

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