At times when savings rates are low, it is less attractive to put your money in a savings account. There are several alternatives that you can consider, such as paying off your mortgage. But what is the reason for low savings rates and what are the advantages and disadvantages of paying off your mortgage?
If you are going to pay off your mortgage, your mortgage debt will be lowered and you will often reduce the monthly costs. As a result, the mortgage lender misses interest income and you will have to pay a fine for this. You can often freely pay a certain amount of fine. This differs per mortgage lender and is in the conditions of your mortgage. Always be informed by an independent mortgage advisor in your area before you make a choice.
Before you make a choice between (partially) paying off your mortgage or putting your money into a savings account, you are wise to get your first advice. Consumind is happy to put you in touch with an independent mortgage advisor in your area to discuss the various options. Only then do you know for sure whether the choice you make is the right one for your situation.
Low savings rates do not just happen. There are various causes for this, including the influence of the European Central Bank. The ECB can set the so-called ECB interest rate to zero percent in order to give economic growth a boost. This reduces the interest on loans, which stimulates the population to borrow more money and therefore spend more money. Normally, loans are financed with assets held with the banks on savings accounts. Due to the low ECB interest rate, banks can borrow money at a low interest rate. As a result, there is less demand for assets on savings accounts and therefore the savings interest automatically falls.
Another cause is the aging of the population. The group of people approaching their pensionable age is proportionately larger than the rest of the population. That large group of people now save for their pension and gives relatively less than the younger population. So there is a lot of capital available at banks and thus the savings interest decreases.