Last week, Rabobank, one of the major banks in the Netherlands, announced an increase in interest on savings. ING and ABN AMRO also follow the biggest interest rate hike In the existence of the euro by the European Central Bank (ECB). This increase by the ECB of 0.75% on all the most important interest rates is on top of the first increase in 11 years in July (+0.5%). By increasing the interest rate, the ECB aims at slowing down economic growth and thus tackling contemporary inflation. What does this mean for the economy, the interest rates on saving accounts, and on student loans?
European Central Bank
In the largest interest rate hike ever in the past 20 years of the existence of the euro (+0.75%), the European Central Bank takes action to control and decrease the current level of inflation. This increase in interest is noticeable for the most important interest rates such as mortgage interest, student loans, and saving and bond interests. The ECB expects that these changes in interest rates apply soon to society. However, these changes as initiated by the ECB need half a year to 9 months to be completely visible in the economy, investments, and spending.
This increase in interest rate mainly applies to three key central bank interest rates: 1) the interest rate of the deposit facility, under which banks deposit money at the ECB, will go from 0% to 0.75%, 2) the refinance rate, the interest that banks pay to the central bank when they withdraw money, will go from 0.5% to 1.25%, and 3) the lending rate goes from 0.75% to 1.50%.
As a result of these adjustments in the ECB policy, the negative interest, as introduced by various big Dutch banks in 2020 for savers with more than 100,000 euros in the bank account, has been discontinued. Instead, the interest rate is going up for the bigger banks in the Netherlands.
Last week Rabobank announced an increase in interest rates, and now customers of ING and ABN AMRO can also count on increased interest rates from December onwards. Rabobank will increase the interest on saving accounts to 0.25%, and on Regenboogrekeningen, saving accounts for children, this will be 0.35%. Currently, normal saving accounts have an interest rate of 0.01% for amounts under 100.000 euros and on the children saving accounts, this is higher at 0.1% for under 100.000. In both cases, an amount above 100.000 results in no interest at all.
In the case of ING, the interest increases for private savers go to 0.25% until 10.000 euros, 0.15% until a million euros, and no interest above the threshold of a million. On par with Rabobank, ABN Amro increases the interest to 0.25% until a million for private savers. According to ABN CEO Robert Swaak, this step means that “we are returning to more normal waters”, indicating that the current situation of inflation is not healthy for the economy.
On the contrary, starting from January 2023, around 140.000 former students need to pay off their student loans with an increased interest rate. Whereas it was promised to the students that the loan would have a 0% interest rate this got changed this month. While the promise of the student loan not influencing the application for a mortgage was already debunked previously, former HBO and University students will have an increase of 0.46% on their student loans.
For former students who started paying off their loans in 2014-2019, due to the interest rates being stuck for 5 years, this interest rate will have no effect and maintains 0%. In the case of students studying before the loan system (2015) who pay off the loan according to the rules of the old system and for all MBO former students, they will have to pay a 1.78% interest rate on their student loan.
Whilst these measures should normalise the economy, students feel betrayed by the government and often feel more pressure due to financial issues. Dijkgraaf, the minister of Education, Culture and Science of the Netherlands, understands that students worry about this increase in interest rate, especially now that everything is expensive due to inflation. However, he emphasises, Dienst Uitvoering Onderwijs (DUO) (Education Executive Agency of the Netherlands) takes the personal situation into account. Opinions on this statement are highly diffused.
Following the huge increase in interest rates by the ECB, the big Dutch banks establish new interest rates and discontinue negative interest rates (often for great savers >100.000 euros). With a general increase of around 0.25% in interest rates on the saving account by the bigger banks, the aim is to stabilise the current situation and decrease the level of inflation. Whilst this can take up to 6 to 9 months to have a visible effect, the new ECB policy showcases that immediate change is needed concerning the interest rates. Smaller Dutch banks such as the Volksbank, including SNS, Regiobank, and ASN Bank are yet to clarify their position. According to the NOS, the Volksbank mentions that different factors play a role in increasing the interest rate and firstly wants to advise customers and advisors before an increase in interest rate.
In the case of student loans, students are angry about the broken promises and the added financial culprit on top of following their education. Whereas inflation threatens society, students feel that the increase in interest rates on student loans could be the last straw for them.