Savings and Euribor

Euribor is the interest rate at which a large number of European banks do provide short term loans to one another. Banks which borrow money from other banks can use these funds to provide loans to other parties. In fact, Euribor is the purchase price a bank does have to pay for a short term loan.

Banks do have other ways to acquire funds: by offering savings accounts for example. Someone saving money by opening a savings account with a savings bank does actually lend money to a bank.

Interest rates on savings accounts and Euribor

For 2 reasons the level of the Euribor-rate and the interest rate offered on a savings account are strongly interrelated in many European countries. Panel banks do have the possibility to borrow money from other banks (at the Euribor rate) or from private individuals. When the Euribor rate decreases, the margin the bank makes is decreasing as well. That’s why banks often do decide to lower the interest rate on savings accounts when the Euribor rate decreases and vice versa. However this does often happen at a delay: the interest rate offered by many banks on savings is only altered when there has been a interest market change of some magnitude.

In general Euribor is in many European countries a good indicator of the movement of interest rates on savings accounts.

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