The head of the European Central Bank, Mario Draghi, is the enemy of many Germans. This is because the interest rate policy reduces the value of their savings. But millions of Germans also benefit from the low interest rates - some do not know yet.
Many German investors feel deceived: with their mini-interest rates, the European Central Bank (ECB) is bringing President Mario Draghi the earned income for the sour savings.
The ECB is not acting arbitrarily, but with a plan. At the height of the financial crisis in the autumn of 2008, the ECB decided to cut interest rates massively. They wanted to stabilize the economy and stimulate demand. Because the ECB failed to make rapid progress, the ECB is holding fast to its course.
As a result, loan balances also hit rock bottom and do not even equal inflation rates. But this is only one part of the truth. The other aspect of ECB policy is often underlined: every debtor saves a lot of money, because he has to pay lower interest rates.
The state saves billions of interests
This is a matter for all Germans, because every citizen of the Federal Republic is a debtor: The deficits of the Federal Republic are currently around two trillion euros (exactly: 2,291.240.000.000 euro). This makes per capita of the population around 27,900 euros of government debt.
Now the ECB comes into play: because interest rates are also favorable for debt, the German government has saved almost 146 billion euros in interest rates since the outbreak of the financial crisis in 2008, as the Handelsblatt recently reported. This means an interest-saving of 3737.77 euros per income tax-liable (as of 2010). If the interest rate savings are shared by all citizens, the amount is 1776.83 euros per capita of the population.
Citizens and firms benefit from the low interest rates: house builders and real estate buyers, who finance large amounts with mortgages, can use moderate debt rates. A lot of lucrative offers are offered by professional commuters who want to buy or lease their cars at a favorable rate.
Homeowners and property buyers live in paradise times
Since October 2008, the ECB has cut interest rates in several steps. This also reduced the interest that real estate buyers must pay for building money. If the average interest rate for ten-year financing according to Interhyp still exceeds five percent at the end of 2008, it is currently still 1.38 percent.
This brings massive savings for every buyer.
Example 1: Requirements: loan sum 150,000 euros, 1.38 per cent effective interest, full repayment within 10 years.
In the ten years, the buyer pays 10,583.90 interest.
If instead of the currently favorable interest rate the rate from the period before the financial crisis in 2008, the bill looks quite different.
Example 2: Requirements: loan sum 150,000 euros, 5.00% effective interest, full repayment within 10 years.
This buyer had to pay 40.554.19 interest until the repayment of his loan.
The difference between the two situations is therefore around 30,000 euros.
209 billion euros of new business per year
Real estate financing is about gigantic amounts. In 2016, according to vdpResearch, the total new business for residential real estate financing amounted to 209 billion euros. At an interest rate of 1.38 per cent, an interest rate of EUR 2.88 billion is payable annually. At five percent interest it is 10.45 billion euros - per year.
It is well known that real estate prices have risen sharply as a result of favorable financing conditions. Buyers now have to pay much higher prices than they did years ago. But the same applies: If you have a property for a long time, profit from the increased prices, because the property is worth more.
According to Statista, the purchase prices of new as well as existing residential properties, including land between 2008 and 2016, grew by an average of 28 percent across Germany. This means a value increase of a good quarter. The prices in metropolises such as Munich and Frankfurt have climbed even more strongly.
Consumer loans for free
Electronics markets lure their customers with tempting offers. For example, MediaMarkt, Saturn and Cyberport offer zero percent financing for maturities of up to three years.
The furniture giant Höffner in the Munich area promises buyers a consumer loan with a term of 72 months. The interest rate is zero percent. The only condition for the deal: The customer has to buy at least for 720 euros - the monthly rate for the loan must be at least ten euros.
In other respects, the interest rates on consumer loans reach historical lows. According to FMH, the interest rate for 36-month consumer loans in the period between April 2007 and April 2017 was an average of 6.53 percent. The maximum was reached by the end of 2008 with 8.28 percent, the minimum of 4.60 percent corresponds to the current values.
This massive decline in interest rates on consumer loans is a merit of the ECB interest rate policy. Draghi and colleagues have wanted this development, because they want to fuel the consumption of the citizens with their pay day loans.
Payday loans in Germany
Anyone who needs money takes a loan from the bank and pays it for many years. This process took place once, because the supply of loans has grown. Decisive factors in the decision for a loan, today are the topics of security and duration. And precisely in the latter the newcomer on the loan stage, the payday loan, makes a clear exception. The payday loan offers immediate loans of 30 days or more. In Germany, however, this form of credit is not yet very widespread. As a rule, payday loans have a maturity of 30 days and can be extended to a maximum of four months depending on the country (e.g. United Kingdom or USA). In Germany, on the other hand, the maturities of a payday loan are much broader. Depending on the provider, the duration of such a loan can range from five days to a maximum of 62 days. Unlike in the UK, it is not possible in Germany to extend a payday loan beyond the agreed loan period. It is also not possible to replace an existing payday loan by taking up a new loan. It is therefore only possible to take up a payday loan again when the old loan has been repaid in full. This is intended to protect debtors from over-indebtedness. In comparison to the UK, it is not unusual to find a cheap payday loan with a fee of 7,95 % in Germany.
This is a payday loan
A payday loan is characterized by its payday term: 30 days, the maximum loan period is 60 days. In addition, the end of the loan term is clearly defined, since the entire loan amount must be repaid at the end of the loan period. The debt is then zero euro. The loan line is also special because payday loans are small loans that range between € 100 and € 3,000. The result of the Schufa query is less important than for a long-term loan. For consumers: A payday loan is the limit, two simultaneous is excluded. Only when the payday loan has been paid a new one can be accepted.
In practice, the payday loan is always used as an option if payday financial bottlenecks have to be bridged. The Berliner Morgenpost calls this loan variant even as an alternative to the dispo loan. In these cases, consumers are taking advantage of the payday loan:
· Car repair is often not planned and is usually quite expensive. If you have a regular income, the payday loan can normally be repaid within 30 or 60 days.
· Even if electrical appliances give up the spirit that is simply part of everyday life (such as a fridge, a television or a washing machine), payday money is a comparatively unbureaucratic and practical solution.
· A third practical example, where the payday loan is often used, is the surprisingly higher incidence of ancillary costs settlement on the part of the energy supplier or on the part of the landlord.
Anyone who assumes that the pure consumption will lead to the payday loan is probably wrong, as according to the report of the GFK, consumerism is slowed down. Consumers have become more economical and have more money to spend.
Who has shares is fine
While savings have hardly been generating any returns for years, the development of equities looks quite different. As assets they benefited from falling interest rates. The value of German equities has been exploding since 2008. Deutsche Börse shows that the Dax was 5326 points on 7 October 2008, the day before the first interest rate cut by the ECB. Currently, the Dax is recording at a good 12,400 meters.
These massive gains are also reflected in the total value of shares issued in Germany. When the market capitalization of all shares listed in Dax, MDax, TecDax, SDax and CDax was at 797 billion euros at the end of the financial crisis in December 2008, the value reached a high of 1.746 trillion euros (1746 billion euros) at the end of March 2017. This was determined by the German Equities Institute (DAI) on the basis of the official figures. The value growth is 949 billion euros or 119 percent.
All those who have invested part of their assets in equities benefited from this value explosion. According to DAI, this amounts to 8.977 million citizens.
If the aforementioned increase in value is divided by the number of shareholders, the following picture is shown:
949 billion euros: 8.977 million shareholders = 105,714.60 euros’ average increase in value of each stockpile.
Of course, this figure does not apply to every shareholder and small investor. Major investors such as banks, insurance companies and foreign pension funds distort statistics. Moreover, the volume of share capital has risen over the years.
Nevertheless, the increase in value shows that it is precisely in periods of low interest that the investment in assets such as stocks can be worthwhile.