The ECB lowers official interest rates by 0.25%, the Savings Portfolio to 2.35%

The European Central Bank (ECB) decided to cut interest rates by 25 basis points, bringing total cuts to 125 bps since the start of its monetary easing cycle. The official deposit rate is now at 2.75%.

This marks a divergence from the Federal Reserve’s (Fed) monetary policy, which opted this week to keep rates unchanged.

Preliminary GDP data from European countries has not left much room for optimism. In the fourth quarter of 2024, France’s GDP fell by 0.1%, Germany’s by 0.2%, and Italy’s remained unchanged, indicating a concerning stagnation in the major European economies.

The central bank is lowering rates to reduce financing costs for individuals and businesses and to support the economy during slowdowns and rising unemployment pressures.

Inflation still hasn’t reached the ECB’s long-term target of 2%. Year-on-year growth was 2.4% in December. ECB President Christine Lagarde acknowledged that inflation in services remains high (the latest observation in December was +4%), but expressed confidence in a slowdown in wage pressures, which significantly contribute to the rise in service prices.

Investors wanted to know from central bankers in Europe and the US whether rate cuts would continue. Both indicated that they still consider rates to be in restrictive territory, i.e., above long-term equilibrium rates. This suggests they believe the rate-cutting cycle is not yet over.

As for the United States, the target is believed to be around 3%, while Christine Lagarde previously indicated neutral European rates in the range of 1.75%-2.25%. The ECB President announced a publication by ECB experts on this issue for February 7.

It is important to note that this is an extremely theoretical matter; no one knows the level of equilibrium rates, and it is not guaranteed that these levels will ultimately be the final point for official rates, especially in a context where new US administration policies on tariffs and expansive fiscal policies may be inflationary.

The Yield (Variable) of our Savings Portfolios in Euro drops to 2.35%

Our savings portfolios offer a return that accumulates at the same rate as the official rates minus costs: this is why we call it Yield variable (Internal Rate of Return). The previous Yield variable was 2.60%. After the cut, it will drop to 2.35% for the lower capital level, as we calculate the Yield variable of the Savings Portfolio, effective 03/02/2025. You can see the Yield based on the account size, which can increase up to 2.53%, as per the table below:

Yield (variable) by invested amount

Net Yield / Portfolio amount up to	€499,999	€999,999	€4,999,999	> € 5,000,000
Savings Portfolio in Euros from 03/02/2025	2.35%	2.40%	2.5%	2.53%

Important note: At the time of writing this article, the 0.25% cut has not yet been fully reflected in the money market funds used in our portfolio. This is because some assets in the funds still have yields linked to the previous rates. We have always acted prudently in our communication related to the calculation of the effective variable TIR. In cases of increases, we have not announced the change until it is effectively reflected in the funds. For cuts, we prefer to be cautious and announce the drop in advance, even if it is not yet fully reflected in the funds, anticipating what will happen in the coming days.

Remember, this is the Yield (variable) that can reasonably be expected to be earned over a year if rates remain at this level. There are no other adverse effects on the portfolio’s value. The only change is that interest is now accumulated at a slightly lower rate. As we have consistently published, the Yield of our Savings Portfolio remains one of the most competitive returns you will find for your immediate savings or emergency fund. Historically, our Savings Portfolio in Euros has had an average return of 1.5 times higher than the interest rates on deposits. Since its launch, the Savings Portfolio has accumulated 5.9% return compared to the 4.2% it would have accumulated in a typical deposit over a year, which is a 1.7 percentage point difference, as shown in the graph below.

Objective Portfolios: set a target return of up to 11% (Yield 2.7%)

At inbestMe, the only portfolio focused on immediate savings or emergency funds is the Savings Portfolio, due to its flexibility and low risk.

For savings that you can invest and commit to a fixed term, we offer Target Portfolios with 12/2026, 12/2027, 11/2028, and 12/2028 maturities. With an objective portfolio, you can set a target accumulated return of up to 11%, with annualized target returns of up to 2.7% in EUR*. If you are considering them, make sure first that you are convinced you do not need the money until the maturity date (although withdrawals are flexible, before maturity you may not reach the target return). An objective portfolio is especially useful for investors who have a specific goal within the next few years. Let’s say you need €100,000 to buy a house in 4 years. In this case, it would be very useful to have reasonable certainty about the return you will get on your portfolio to ensure that this €100,000 will be available when needed. It would not be advisable to invest all the money in stocks, as a stock portfolio can fluctuate significantly over time. It would be better to have an objective portfolio, where the return can be known in advance. This option would also be safer than a traditional bond portfolio, where the return can fluctuate over time. It may even be safer than a savings portfolio, as the Yield of the latter is unknown for the future. In the case of the savings portfolio, you would never lose money due to a negative fluctuation in capital, but you cannot know with certainty what Yield it will generate in the future.

Bond Portfolios (Yield up to 4.0%)

If your investment term is still short or medium-term, but more uncertain, we also offer Bond Portfolios, with Yield reaching up to 4.0% in EUR* for the aggressive bond portfolio.

*Important note: these target returns or TIRs are the latest calculated on 15/01/2025 and are subject to change. On the respective pages for each portfolio, you can see more details.

Currently, for some investors with investment terms beyond one year, and given the decrease in the return from the Savings Portfolios, there are options that may make more sense, as the so-called yield curve has steepened significantly over the past months (see chart below) and, as already mentioned, the ECB is expected to continue cutting rates aggressively throughout 2025.

Source: TradingView