How will the drop in interest rates affect you?

Once again, Mario Draghi, president of the European Central Bank (ECB), has once again surprised the financial markets, and why not, the citizens themselves, and has ordered a new drop, and on this historic occasion, in interest rates. of interest in the euro zone. As a consequence of this measure, the price of money is no longer worth anything, since it is at 0%, something unthinkable a few weeks ago for a good part of the economic analysts.

One question that is in the air is because this unprecedented monetary cut in the history of the European Union has been imported. From the European issuing bank they allude that It is essential for the flow of credits to reach their final addressee, which are none other than users. But from other unofficial sources they interpret the implementation of this measure as a retaining wall in the face of the global recession that may be building at the moment. And of course they have not hesitated to launch their best weapons in the form of monetary missiles.

From today the price of money in the European Union is at 0%, without value for this applied interest rate. This is surprising news, which has been greeted by the equity markets, although not without some doubts about its effectiveness, as has been seen in the trading sessions after this decision. In any case, from now on, both economic agents and European citizens themselves they will have to start learning to live in this new setting that arises in the old continent. No historical antecedents that can explain its implementation.

Interest rates: effects

Although the first reaction has come from the stock markets, it is good that it is known how it will finally reach European citizens, and more specifically the Spanish. Of course it is going to have many repercussions on them, and more than they may initially expect. Not only as investors in financial markets, but also as users of the main banking products. In some cases, they will benefit, but in others not so much, even their interests will be displaced with the application of this monetary measure with deep repercussions on the international economy.

And that very especially will have to do with the relationships you have with banks from now on. You will notice some changes that it will be advisable for you to know in depth, or at least how they affect the banking operations that you perform more frequently. In some, you will win and it will benefit you to save some money on your movements. But in others, the bottom line will be less satisfactory, as you can see.

Virtually all banking operations will be affected by the recent drop in interest rates in the price of money, almost without exception. From the application for a personal loan to the formalization of a term tax. Without forgetting, of course, that equity markets will be more sensitive to the null value of money, with its consequent revaluations in stocks, indices and sectors of the stock market, especially the European one. Even without knowing how long these bullish movements will last.

Lower return on savings

A direct consequence of the almost total lowering of the price of money as a consequence of the fall in the interest rate will be a decrease in profitability of the main savings products (deposits, bank promissory notes, and even checking accounts). Because in effect, banks can immediately pass this measure on to customers. With a drop in the interest rates that apply to their products.

One of the effects of this forceful measure is that the performance that these savings models will generate will be practically nil. They were already under very uncompetitive margins for customers. Where it was rare that they exceeded the 0,50% threshold. Well, from now on it may be less and be reduced by a few tenths of the accounts with respect to trade margins prior to the declaration of the head of the European Union's monetary policy.

This incidence may cause many families, given the lack of profitability of their savings, to turn to other designs that may produce an increase in the monetary return. And in this sense are attracted to equity markets, and in one way or another, in certain investment funds. Even at the cost of assuming higher risks, since these products do not guarantee any profitability in any case.

Cheaper credit lines

Not everything will be unfavorable for the interests of bank customers, if this is your case. A price of money that costs zero will inevitably benefit the demand for all financing channels: mortgages, consumer loans, personal or microcredits. Not in vain, the greater ease that banks will have to access cheaper money will be transferred to customer operations.

The first positive effect will result in a reduction in the interest rates applied by banks to their financing products. The conditions of contracting the credits, therefore, will be more competitive, with lower interest rates that will make the monthly payments you have to pay more affordable. The difference will not be much, but it will mean a few euros for each operation that you formalize from now on.

In any case, It will not mean a relaxation in the requirements imposed by banks to access credits. They will be practically as before, where each entity will request its own conditions to formalize them: direct debit of payroll, link with other products, endorsements from other people, or even provide an immaculate record. In this sense, there will not be any type of variations.

Effects on investments

As you have seen, its first manifestation has occurred in the equity markets. Immediately, and even benefiting those who already have open positions in the stock market. After an erratic session on Thursday, which went from more to less, the next day the reaction was more favorable, with appreciations of almost 4% in all European markets, especially in the banking sector.

What are the values ​​most sensitive to this drop in interest rates driven by Mario Draghi? Well, there is no doubt, those belonging to the banking sector, and by extension to other financial activities (insurance companies, intermediaries, etc.). Not in vain, are the most sensitive to this monetary plan, as has been seen in the financial markets in recent days, with rises above the average, and in some very specific cases they have even appreciated up to 12%.

In any case, and if you are a small investor, you should know that all stock market sectors are receptive to increases, given this scenario that is opening up in the European economy. And from which you can benefit if you have already taken positions in the stock market. The intensity of these increases remains to be clarified, and how long they will be kept. Not surprisingly, the current stock market outlook is dominated by uncertainty, and as a consequence, by strong volatility in company prices.

To the point, that if you want to protect the savings, you can subscribe the investment funds more receptive to relaxation in the price of money, at least in the area of ​​the old continent. Through quick actions you can also obtain a great benefit to your savings. Although everything indicates that it will be under very limited effects. Corrections will certainly occur in the markets. Which will serve, in the case of the most aggressive investors, to increase their positions in the trading floors.

Some recommendations to benefit

If you want the reduction in the price of money not to leave you out of the game, you will have no choice but to influence a series of strategies that you should not forget in the current economic scenario. Not only as an investor, but also as a bank customer. And that in all cases, they go through the following actions.

• If you are faced with the need to demand a loanWhatever the nature, wait just a few more weeks, since you can certainly formalize it with lower interest rates. And in this way you can contain the expenses to allocate them to other needs in your daily life, even giving yourself a little whim to celebrate it with greater enthusiasm.
• It is increasingly clear that to achieve a more optimal performance for your savings, there will be no choice but risk in the choice of investment models. And where term deposits play an increasingly secondary role due to the low interest offered by their annual returns.
• Getting into debt is increasingly feasible, as long as your income levels allow it, since the price you will pay for the quantities demanded is being reduced significantly. Although in no case should you abuse these operations, since they can weigh you down for the next few years, and even more than you imagine.
• Surely the lowering of the interest rate activate bullish movements in equities, both Spanish and European, but with corrections through that may limit your objectives to make the heritage profitable.
• In any case, it will not be a monetary plan that lasts a lifetime, and if you contract a personal loan, or even a mortgage, at the end of its duration, its conditions may vary. If, on the other hand, you formalize any of these short-term financing channels, you will benefit more from the operation.
• To finish, think that I know has reached the maximum cut in the price of money, and that there will be no more ammunition to tackle any economic crisis that occurs in our societies.