D.he low inflation in Germany has a consequence that many savers may not have in mind: for the first time since 2016, the real interest income of German savers is positive again. In July, the interest income for important savings investments totaled 191.2 million euros, as the internet platform Tagesgeldvergleich.net calculates. The platform compares the average interest rates on daily deposits, savings books, savings bonds with a term of four years and fixed-term deposits with a term of one month.
The last time this value was positive in June 2016 at 217 million euros, since then the low interest rate phase with simultaneous inflation had resulted in negative real interest rates. That has now changed due to the fall in the inflation rate. The inflation rate was minus 0.1 percent in July and 0 percent in August.
The platform reports that positive real interest rates on German savings are likely to have continued in August due to low inflation.
The Deutsche Bundesbank confirmed that such a development was the natural consequence of low inflation rates. With inflation of minus 0.1 percent in July, even non-interest-bearing savings (nominal interest rate 0 percent) led to real interest rates of plus 0.1 percent after inflation: the money will not be any more, but its purchasing power will increase. Even a slightly negative interest rate on savings deposits (interest rate between 0 and minus 0.1 percent) would have led to positive real interest rates for savers after inflation under these circumstances. Even cash increases in value when inflation is negative.
According to the European calculation of the Harmonized Consumer Price Index (HICP), the inflation rate in Germany was still negative in August. This calculation differs slightly from the German calculation method. The inflation rate for the euro zone in August was also below zero, even at minus 0.2 percent. If you look at these inflation figures, you will find that the purchasing power of savings deposits will increase, at least for a few months, even with zero or slightly negative interest rates.
Real rates are crucial
It has recently been controversial whether the official inflation rate correctly reflects the price development even in times of the Corona, because above all oil became cheaper, which was needed less during the shutdown, while food became significantly more expensive. Most recently, however, the so-called core rate of inflation, that is, inflation without strongly fluctuating prices such as those for energy and food, has fallen noticeably. However, it is unclear how inflation will develop over the course of the year; To conclude from one month to the whole year would certainly be premature.
Anyone who thinks that all of this is a mathematical sleight of hand to reassure savers should not underestimate the importance of inflation. The so-called “money illusion” describes the fact that many savers only look at the nominal amount of interest, i.e. the money they get from the bank for their savings (or recently sometimes even have to pay). Economists largely agree that what matters to savers is real interest rates, i.e. interest rates after taking inflation into account.