The ECB cuts interest rates by 0.25%
On Thursday 12/09, the European Central Bank lowered its official interest rates by 0.25%, lowering the deposit facility rate from 3.75% to 3.50%.
The latest data for the eurozone put inflation at 2.2% year-on-year, not far from the European Central Bank’s 2% target. The ECB’s latest projections indicate average inflation of 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026.
It should be noted that price dynamics continue to merit close attention. Increases in service prices and wage inflation remain high, but show some signs of slowing.
The situation is slowly returning to normal after the pandemic shock that pushed inflation to a peak of 10.7% in October 2022. This increase was determined by a combination of causes, such as rising energy prices, malfunctioning global supply chains and increased demand following the pandemic.
What central banks do when inflation rises is raise interest rates. This often has the effect of making borrowing more expensive and slowing down the economy and inflation. This process, known as monetary policy transmission, operates with lags that are not fully understood. Economic theory simply says that they are “long and variable.”
At this point, however, it appears that the slowdown in inflation is allowing central banks to lower policy rates. The Federal Reserve will probably do the same next week.
The Yield (Variable) of our Euro Savings Portfolios drops to 3.10%
Our savings portfolios offer a return that accumulates at the same rate as the official rates less costs: that is why we call it variable Yield. The previous (variable) Yield was 3.35%. After the cut, it will drop to 3.10% for the lowest capital level, as we calculate the variable Yield of the Savings Portfolio as of 09/16/2024. You can see the Yield according to the account volume that can increase up to 3.28% according to the table below:
Yield (variable) according to amount invested
| Yield (net) / Portfolio amount up to | € 499,999 | € 999,999 | € 4,999,999 | >5000000 |
| Savings Portfolio in Euros from 09/16/2024 | 3.10% | 3.15% | 3.25% | 3.28% |
Important note: At the time of writing, the 0.25% reduction has not yet been reflected in the money market funds used in our portfolio. This is because some assets in the funds’ portfolio still have yields linked to the previous rates. We have always acted cautiously in communication related to the calculation of the variable effective Yield. In cases of increases, we have not announced the change until it is effectively reflected. Regarding reductions, we prefer to be cautious and announce the decrease in advance, even if it is not yet fully reflected in the money market funds used, in anticipation of what will happen in a few days.
Remember that this is the (variable) Yield that can reasonably be expected to be obtained in one year if rates remain at this level. There are no other adverse effects on the value of the portfolio. The only change is that interest will now accrue at a slightly slower rate. As we have already repeatedly published, the Yield of our Savings Portfolio remains one of the most competitive returns you can find for your immediate savings or your emergency fund. Historically, our Euro Savings Portfolio has had an average return almost 1% higher than the interest rates on deposits, as can be seen in the following graph. This difference was 0.8% in the latest available data from the Bank of Spain (July 2024).
Target Portfolios (Yield 3.4%) and Bond Portfolios (up to 4%)
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 for a predetermined period, inbestMe launched Target Portfolios a few months ago with maturities 12/2025, 4/2026, 12/2026 and 12/2027 with target returns of up to 3.4%*. If you consider them, make sure you are convinced that you do not need the money until that maturity (although withdrawal is flexible, before maturity you may not obtain the target return).
If your investment period is still short or medium term, but more indeterminate, we have recently reinforced our Bond Portfolios with yields of up to 4%* for the aggressive bond portfolio.
*Important note: these target returns or Yields are the latest calculated on 30/08/2024 and are subject to change. You can see more details on the pages corresponding to each portfolio.
