What Does the Spanish Interest Rate Outlook Mean for You? (2023)


What Does the Spanish Interest Rate Outlook Mean for You? (1)

I had a very nice dinner at Isabella's on Carrer de Ganduxer a few days ago with an investment manager I have known for 12 years. We meet regularly and he is one of the investment managers in London that we use as a company for some of our clients. So we know each other professionally quite well and one of us always acts as devil’s advocate to the other one’s position in discussions. It is a great way of getting your point of view tested. Yes we did talk about Brexit, but the more important issue was the fact that long term interest rates are likely to stay low for a very long time in Spain and in Europe. So here are some thoughts about what these low interest rates mean for our savings and investing.

First Brexit. Brexit is on everyone’s lips and quite understandably so. Whether you love it or hate it, no one seems to be able to work out what is going to happen. I admit to not being able to work out where it will end. The Brexit outcome is incredibly important to us as individuals and businesses. Yet what about for our investments? Britain is the sixth largest economy in the world. Sounds important. According to the World Bank, the world economy is $86 trillion. Britain’s economy is $2.8 trillion. So Britain represents just 3.26% of the world's economy. Which means we still have 96.74% of the world economy where we can invest!!!

Interest Rates Could Stay Low for Decades

Perhaps the more important story for savings and investments is the impact of very low interest rates that could stay low for decades. My dinner guest gave good insight into the future of low interest rates. This insight is important to us as individuals with savings and investments.

In October 2007, interest rates in the UK fell from 5.5% to 0.5% in May 2009. Interest rates in Europe followed a similar path. The ECB in July 2007 cut its interest rate from 5.25% to 0.75% in May 2009. The ECB rate has now fallen to just 0.25%.

Will low interest rates stimulate the economy? Yes, it will, but not enough to get economies back on track. Mario Draghi, the current President of the ECB, says central banks changing interest rates will help but governments have to spend more too for sufficient economic growth to happen. As an example, Germany has been taking a lot of stick because it has not been spending. The amount it collects in taxes etc. is equal to the amount it spends. This is the German government policy. This is a sensible policy unless parts of the country break down and need repairs. Two items that need repair in Germany are the military and the transport infrastructure.


(Video) UK faces longest ever recession - warns Bank of England

What Does the Spanish Interest Rate Outlook Mean for You? (3)

The military, if the stories are to be believed, did not have one single usable helicopter earlier this year. Roads in Germany need repairs, including bridges. Spending money on these road repairs not only give jobs to workers and their companies but also helps the German transport system to run smoothly. This helps the logistics chain and gives a boost to the economy. These are two examples in which government spending is helpful and supportive of low interest rates. To offset a recession there has been some suggestion of Germany spending €50 Billion euros on infrastructure spending. As a comparison, Spain already is spending more than it gets in on taxes.

The Bank of England Monetary Policy Committee is responsible for setting interest rates in the UK. It has said that due to the Brexit uncertainty, the next UK interest rate move is likely to be down. The UK official interest rate is only 0.5% now, which gives an indication of the outlook for interest rates: near zero for a long time.

JP Morgan is the sixth largest bank in the world with assets of $2.73 trillion. Bob Michele, Global Head of Fixed Income at JP Morgan has gone even further than the Bank of England in predicting the European interest rates. His analysis shows that Europe will have negative interest rates for the next eight years. Mario Draghi has also said that European economic growth will be very low for seven years, which is another indicator for low interest rates. Indeed for both the UK and the EU there are many forecasts of very long term, low interest rates.

How Low Can They Go?

On the bright side, borrowing costs are much reduced as a result of low interest rates. Monthly mortgage payments are much smaller than normal. Businesses and governments can borrow at much lower rates. On the dark side, we get little, or indeed no, interest on our savings. How low can interest rates go? Rates are negative in Switzerland and Denmark for people living outside the country. These non resident account holders actually have to pay the bank to take their money. When interest rates on savings are very, very low, what do we do with our savings?

If we have savings should we consider paying off our mortgage? Mortgage rates in Spain around 1.63% fixed for 20 years (email me if you require details). It can be better to invest than pay off a mortgage at this rate. If we have other loans we should look to pay off the loan from savings if the interest rate on the loan is greater than can be achieved by investing. A good benchmark figure to use is if the loan rate is greater than 5% per annum we should consider paying it off from savings.

Despite these low rates it is essential that we keep some money readily available, probably in a bank, as an emergency fund. Yet, in these times of historically low interest rates, it is also essential we do not leave more than we need in the bank. Inflation, even low inflation, eats into the buying power of money left in the bank. It is an insidious effect we often don’t notice until we come to make our next big purchase. It is at this point we realize that we can’t buy what we thought we could buy because we have had interest on our savings that was smaller than the rate of inflation. When this happens, buying power falls. Instead of being able to buy the sports version of a Seat we find we can only afford the base model. We need to use other types of savings and investing during times like these. There are many other options but most alternatives come with some investment risk.


What Does the Spanish Interest Rate Outlook Mean for You? (5)

What Does Investment Risk Look Like?

You may not have realized, but since the market collapsed in 2009 there have been corrections of -16.0%, -19.4%, -12.4%, -13.3%, and -10.2% in the S&P 500!

(Video) 'Significant' interest rate rise to come, Bank of England suggests

What is the investment return on the S&P 500 since bank interest rates hit their lows in 2009? INCLUDING the falls above, it may surprise you that the return has been 219%.

This is just one index based on shares in one country and is used to highlight volatility in a market. To reduce the impact of this volatility our savings should be in diversified pots. A fair question for you to ask is: “With these low interest rates, what pots do you invest in?” The answer is: I have a mix. I have some very steady, some would say old fashioned, funds. Others are with a mix of investments managed by a fund manager, including some investments in the S&P 500. I have some UK Premium Bonds for my emergency fund as they are easily accessible. I have income producing investments in my pension. Index linked funds give me some protection against inflation (just in case we get an unexpected event). I have some forward looking funds that invest in India and China. And then … well I have three small holdings in UK private companies making new technologies and an Exchange Traded Fund (ETF) for Artificial Intelligence and Robotics.

There is diversity across types of investments, e.g., shares, funds, regions and bonds. Within the higher risk parts there is balancing of risk. The three individual shareholdings in tech companies are very high risk because the value of the shares in each company depends on the results of that company alone. The balance is provided because the ETF performance has 41 companies it tracks. If one company does badly, there are 40 others to take up the slack. It was sensible for me to diversify from an investment being dependent on the results of one company to something which is dependent on the results of 41 companies. Especially as I am not a researcher in the fields of AI and robotics.

This is my mix of investments but it may not be right for you, depending on what return you want and how much risk you are prepared to take. Do I also choose superb investments and do these investments avoid market falls? I admit it, no they don’t. But my diversification does.


What Does the Spanish Interest Rate Outlook Mean for You? (6)

The Taxman

Tax is also relevant to the good husbandry of your savings at all times, not just when rates are low. With money in the bank and interest rates so low, it just adds insult to injury when the taxman takes 19%-21% of your interest. However, it is important that having moved your savings from a bank account you make the investment tax efficient. How to do this will depend upon your situation and requires individual advice.

(Video) Bank of England Governor: 'Interest rates need to rise'

This brief overview gives an example of what we need to do now as we are faced with low interest rates for a long period. What is right for you will depend on your circumstances. Is it worth taking some risk? Yes, especially if you use several different types of investments; investments in different types of assets and different geographical areas. Putting your savings in different pots can help to reduce the investment risk.

As is often the case, what initially looks like a disadvantage—the low interest rates—means opportunities appear elsewhere!

Barry Davys is a partner with The Spectrum IFA Group. He lives in Barcelona and provides financial planning specifically for international people who live in Catalonia using his knowledge of Catalan, Spanish and UK tax. The advice is given in English. Business owners and people approaching retirement find his guidance particularly useful. You can read more articles by Barry here.


What is the Spanish interest rate? ›

Last Value2.92%
Last UpdatedOct 12 2022, 10:01 EDT
Next ReleaseNov 11 2022, 10:00 EST
Long Term Average3.23%
Average Growth Rate19.44%
1 more row

What is the interest rate outlook? ›

Mortgage rate predictions for late 2022

The National Association of Home Builders and the Mortgage Bankers Association sit at the low end of the group, estimating the average 30-year fixed interest rate will settle at 5.39% and 5.5% for Q4.

What does the word interest rate mean to you? ›

The interest rate is the amount a lender charges a borrower and is a percentage of the principal—the amount loaned. The interest rate on a loan is typically noted on an annual basis known as the annual percentage rate (APR).

What's going to happen to interest rates in 2022? ›

Between December 2021 and November 2022 the BOE has increased it base rate at 8 consecutive meetings, taking the base rate from 0.1% to 3% which is the highest level in 14 years. The BOE is attempting to quell rising inflation which is now well above the BOE's official target of 2%.

Which country has the best interest rates? ›


What is the Spanish rate of inflation? ›

For 2021, an inflation rate of 3.1% was calculated. During the observation period from 1960 to 2021, the average inflation rate was 6.4% per year. Overall, the price increase was 3,935.49%. An item that cost 100 euros in 1960 costs 4,035.49 euros at the beginning of 2022.

What happens when interest rates rise? ›

When the Fed increases rates, the market prices of existing bonds immediately decline. That's because new bonds will soon be coming onto the market offering investors higher interest rate payments.

Will interest rates rise or fall in 2022? ›

“With inflation still running at a 40-year high and the Fed expecting a few more rate increases to combat it, mortgage rates will experience upward pressure through the end of 2022,” said Ratiu.

Will interest rates be going up or down? ›

Mortgage rates are likely to continue to rise in 2022. Many factors influence mortgage rates, including inflation, world events, economic crises, personal factors, the Federal Reserve and even bond prices. Even though mortgage interest rates increase, they will still be lower than historical mortgage rates.

What is an interest rate why it is important? ›

Interest rates are one of the most important numbers in the economy because they influence how likely people are to borrow money. If interest rates are really high, it's expensive to borrow money. When they're low, it's much cheaper.

Why is interest rate so important? ›

One way that interest rates matter is they influence borrowing costs and spending decisions of households and businesses. Lower interest rates, for example, would encourage more people to obtain a mortgage for a new home or to borrow money for an automobile or for home improvement.

What is interest rate with example? ›

The rate provides the exact amount of interest a person earns or pays for a loan. For example, a loan of $100 with a nominal interest rate of 6% would accrue $6 in interest ($100 X 0.06). The rate does not change if the amount of the loan increases. A borrower would still pay 6% if the loan increased to $1,000.

Will interest rates go up in August 2022? ›

Bank Rate increased to 1.75% - August 2022.

Who benefits from increased interest rates? ›

With profit margins that actually expand as rates climb, entities like banks, insurance companies, brokerage firms, and money managers generally benefit from higher interest rates.

Which country is interest free? ›

Other countries such as Malaysia, Indonesia, Bangladesh, Jordan, Egypt and Turkey operate the financial institutions based on interest-free principles alongside conventional banks.

What is the best savings account in Spain? ›

Best Banks in Spain for Expats
  • BBVA Bank Spain. When it comes to opening a bank account in Spain and particularly for non-residents, the BBVA Bank Spain is definitely a choice to have in mind. ...
  • Banco Popular. ...
  • Santander Bank. ...
  • Sadabell Bank Spain. ...
  • Bankia Spain. ...
  • Revoult Spain. ...
  • N26 Online Bank. ...
  • TransferWise.

Which country has the lowest interest rate in the world? ›

The following are the five countries with the lowest interest rates as of Jun. 11, 2022.
11, 2022.
  1. Switzerland. The Swiss National Bank reported an unchanged benchmark of a three-month LIBOR of -0.75%. ...
  2. Denmark. ...
  3. Japan. ...
  4. Sweden. ...
  5. Spain.

What is the current inflation rate in Spain 2022? ›

Latest Updates. The Bank of Spain this month projected annual EU-harmonised inflation to end 2022 at 8.7%, up from a previous expectation of 7.2%. It expects a still hefty inflation rate of 5.6% in 2023 before it falls to 1.9% by 2024.

What is Spain's inflation rate for 2022? ›

The annual inflation rate in Spain eased to 8.9 percent in September of 2022 from 10.5 percent in the previous month, revised lower from preliminary estimates of 9 percent.

Why is Spain's inflation so high? ›

It added that the high inflation stemmed from the price increases in fuel, food and non-alcoholic beverages. "The increase in hotel, cafe and restaurant prices, higher than last year, also played a role," it added.

How will the interest rate affect me? ›

The higher the percentage, the more you have to pay back, for a loan of a given size. But if you are a saver, the rate tells you how much money will be paid into your account, as a percentage of your savings. The higher the savings rate, the more will be paid into your account for a given-sized deposit.

How does increasing interest rates help the economy? ›

Even so, interest rate hikes are known as the central bank's one major tool to lower inflation, which it does by raising the cost of borrowing money to curb the demand for goods and services.

What will happen to interest rates in 2023? ›

Interest-rate forecast.

We project a year-end 2023 federal-funds rate of 3%, compared with 4% for consensus. Further out, our 2026 and long-run projection for the fed-funds rate and 10-year Treasury yield are 1.75% and 2.75%, respectively.

Will interest rates stay low in 2023? ›

NAB: Early 2024

NAB is forecasting the cash rate will reach 3.60% by March 2023 and stay there for the remainder of the year, before dropping by 50 basis points to 3.10% by March 2024. NAB predicts it will then fall by a further 25 basis points by June 2024 to 2.85%.

How much will interest rates go up in the next 5 years? ›

The CBO forecasts the FFR to rise to 2.6% by 2023, before levelling off through to 2032, indicating interest-rate predictions in five years of 2.6%.

Will interest rates go up in September 2022? ›

Bank Rate increased to 2.25% - September 2022.

Will interest rates go down in 2024? ›

"If our forecast for Fed rate cuts is realized, mortgage rates are likely to fall slightly [in 2024] just as cooling inflation pressures boost real income growth. A modest improvement in sales activity should then follow, which will reignite home price appreciation heading into 2024," the Wells Fargo researchers write.

What will mortgage rates be at the end of 2022? ›

In September, with inflation remaining persistently high, the Federal Reserve raised the target range for the federal funds rate by 0.75% to 3%-3.25%. The Federal Reserve also issued median predictions, indicating that the target rate is expected to be 4.4% by the end of 2022.

What is the most important interest rate? ›

The federal funds rate is one of the most important interest rates in the U.S. economy. That's because it affects monetary and financial conditions, which in turn have a bearing on critical aspects of the broader economy including employment, growth, and inflation.

How does interest rate affect the economy of a country? ›

A higher interest rate tends to limit the money supply available for purchases. It could discourage consumer and business spending, especially on commonly financed big-ticket items like housing and capital equipment. It could also reverse the wealth effect on individuals and make banks more cautious in lending.

Do interest rates really matter? ›

One way that interest rates matter is they influence borrowing costs. If interest rates are lower, that will encourage more people to take out a mortgage and purchase a house, purchase an automobile, or take out a loan for home improvement, those kinds of things.

What is interest in short answer? ›

Interest is the concept of compensating one party for incurring risk and sacrificing the opportunity to use funds while penalizing another party for the use of someone else's funds.

What are the 3 types of interest? ›

What are the Different Types of Interest? The three types of interest include simple (regular) interest, accrued interest, and compounding interest.

What is a good interest rate? ›

A good personal loan interest rate depends on your credit score: 740 and above: Below 8% (look for loans for excellent credit) 670 to 739: Around 14% (look for loans for good credit) 580 to 669: Around 18% (look for loans for fair credit)

How much can interest rates rise in 2022? ›

Fed Rate Hikes In 2022

In early May 2022, the Federal Reserve issued another statement that it would again raise the target range for the federal funds rate to between 0.75% and 1%.

Who is worse off when interest rates rise? ›

Step 2. Explanation. No, when interest rates rise, not everyone suffers. people who need to borrow funds for any purpose are negatively because financing costs more; conversely, savers earn profit because they can earn greater interest rates on their savings.

What are the pros and cons of high interest rates? ›

One of the biggest “pros” to higher interest rates are the higher savings returns that can be earned in a savings account. Conversely, when interest rates are rising, business and consumers cut back on spending as increases in prices on goods resulting in lower consumption.

Are high interest rates good or bad? ›

Bottom line: A rate increase or decrease is neither good nor bad. It's more like an indication of the overall U.S. economy. Instead of panicking when it changes, focus on fulfilling your long-term saving and debt payoff goals one at a time. Learn more about the basics of interest rates.

› Fundamentals › Bonds ›

It is important for investors to understand the prospects for interest rate moves as they value their investments. However, understanding why interest rates cha...
Interest rates are going up. The Federal Reserve hiked rates once in 2015, once again last year and twice in …
Higher interest rates tend to negatively affect earnings and stock prices (often with the exception of the financial sector). Any impact on the stock market fro...

Which Spanish bank is best for non residents? ›

Here are some of the best banks in Spain for non-residents.
  • BBVA Bank Spain. ...
  • Banco Popular. ...
  • Santander Bank. ...
  • Sadabell Bank Spain. ...
  • Bankia Spain. ...
  • Revoult Spain. ...
  • N26 Online Bank. ...
  • TransferWise.

Which country has the cheapest interest rate? ›

The following are the five countries with the lowest interest rates as of Jun. 11, 2022.
11, 2022.
  1. Switzerland. The Swiss National Bank reported an unchanged benchmark of a three-month LIBOR of -0.75%. ...
  2. Denmark. ...
  3. Japan. ...
  4. Sweden. ...
  5. Spain.

What is the average saving rate in Spain? ›

Spain Gross Savings Rate is updated quarterly, with data available from Mar 1999 to Mar 2022, and an average rate of 20.4%.

What is the best Spanish bank account? ›

Best Online Banks in Spain
  • Best current account — N26.
  • Best for sustainable banking — Tomorrow.
  • Best all-rounder — Revolut.
  • Best for foreign currency spending — Wise.
  • Best local account — Imagin.
  • Best paid current account — bunq.
  • Best for cashback — Vivid Money.
  • Recapping the 8 best Spanish online banks.

How much money do you need in the bank to get residency in Spain? ›

So, based on the above, if you are applying for residency in Spain in 2022 we recommend proving: A regular monthly income of at least €600 OR a lump sum/savings of at least €7000 in a Spanish bank account.

Can I open a bank account in Spain if I am not a resident? ›

Yes, a foreign non-resident in Spain can open a bank account. To do so, they must take an ID document (normally a passport) and a certificate of non-residency to any of our branches.

What is the safest bank in Spain? ›

Santander is the safest bank in Spain according to Global Finance.

Where is the cheapest place on earth? ›

10 Cheapest Countries in the World to Live In
  • Vietnam.
  • South Africa.
  • Ecuador.
  • Costa Rica.
  • Malaysia.
  • Mexico.
  • Indonesia.
  • Bulgaria.

What is the safest and cheapest country in the world? ›

10 of the cheapest and safest places to live in the world
  • Albania.
  • Portugal.
  • Costa Rica.
  • Panama.
  • Mexico.
  • Thailand.
  • Malaysia.
  • Vietnam.

Is China cutting interest rates? ›

The central bank has cut the rate on its one-year policy loans, known as the medium-term lending facility, twice this year already, driving bank lending rates down.

How much money do you need in the bank to retire in Spain? ›

Retirement in Spain also tends to be fairly low cost. You can retire comfortably on about $2,000-2,200 a month, about $25,000-27,000 a year. If you choose to live a bit further away from the big cities, you can retire at approximately $1,700-1,900 a month, which is about $20,000-22,000 annually.

Can I retire in Spain with 500k? ›

Financial requirements for retiring in Spain

If you're a non-EU/EEA citizen who wishes to retire in Spain, you'll need to prove you have enough income to support yourself without income from employment. As of 2021, the minimum figure for this is currently set at €2,259 per month or just over €27,000 per calendar year.

How much savings do you need to buy a house in Spain? ›

Banks in Spain generally finance 80% of the value of the property you wish to purchase (if the property is to be used as your main residence), meaning that you need to have saved up 20% of the property value in order to pay a deposit.

Why do Spanish banks freeze accounts? ›

Thousands of Spanish bank accounts, mostly owned by non residents, have been blocked (or “frozen”), in some cases without previous notice, since Spanish banks started to apply the law of Prevention of Money Laundering and terrorist financing .

How can I avoid bank fees in Spain? ›

Maintaining a minimum balance (this is normally a daily minimum, not the average during the month) Using the credit card issued by the bank a minimum of 2 or more times a month or quarter. Having several direct debits (your usual household bills)

Can the Spanish government take money from your bank account? ›

The government office or a court can order an embargo of your bank account in Spain which means that money can be taken directly out of it without your direct permission. If there is insufficient money in the account to cover the debt then assets can also have an embargo against them.


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