snb key interest rate reduction
Banking News

How the Lower SNB Key Interest Rate Affects You

March 21, 2024 - Benjamin Manz

The Swiss National Bank (SNB) has lowered its interest rates sooner than was generally expected. explains what this means for Swiss consumers, mortgagors, and investors.

The Swiss National Bank (SNB) has lowered its key interest rate for the first time since 2015. The rate was changed from 1.75 percent to 1.5 percent. Market observers had expected multiple reductions to the key interest rate this year because of the low inflation rate. But the majority of analysts expected the first reduction to happen in June, 2024. The current change came as a surprise for many analysts.

But what does the change in the key interest rate mean for Swiss consumers and investors? explains the most important effects in this report.

1. The franc should get weaker

The Swiss franc weakened slightly against foreign currencies after the announcement. The effect is that shopping from foreign merchants and holidaying in foreign countries will become somewhat more expensive again. However, many other factors also affect currency exchange rates. The chance of the Swiss franc strengthening again cannot be ruled out.

2. The interest rates of fixed deposits will sink

The interest rates of new Swiss fixed deposit accounts and medium-term notes are more volatile than those of savings accounts. They respond to changes in the market very quickly. It is interesting to note that many banks have already lowered their interest rates for fixed deposit accounts and medium-term notes over the past weeks. We can expect to see interest rates drop further in lieu of the SNB’s early key interest rate reduction.

3. End of climbing savings account interest rates

Swiss banks are generally slow to change their savings account interest rates. That was apparent throughout the series of key interest rate hikes by the SNB. Many banks were very conservative when it came to raising savings interest rates. On that basis, does not expect banks to suddenly lower their interest rates for savings accounts. It is interesting to note that savings account interest rates have hardly gone up in March, 2024. Only a handful of banks still raised their interest rates.

We likely will not see many changes with regard to savings accounts in the coming months. Exceptions are always possible, so it is worth regularly comparing savings accounts. Some banks may lower their savings account interest rates, while others may raise them.  

4. Positive effects on Swiss stocks

Reductions in key interest rates normally have a positive impact on stock prices. That is evidenced by the spike in Swiss stock prices shortly after the surprising announcement by the SNB. Low key interest rates normally have a negative effect on savings account interest rates, but a positive effect on stock prices. However, there are many other factors that affect the prices of Swiss stocks.

5. Mortgages will get cheaper

The costs of Swiss SARON mortgages are directly linked to the key interest rate, so we can expect them to come down. Fixed-rate mortgages (FRMs) also become cheaper when the key interest rate sinks. However, lenders already counted on the key rate being lowered in 2024, and accounted for this in their fixed-mortgage interest rates before the SNB’s announcement.

But the reduction in the key interest rate came sooner than expected. As a result, the interest rates of fixed-rate mortgages slid on the day of the SNB’s announcement. On March 21, 2024, the average interest rate for 10-year FRMs sank to 2.3 percent from 2.32 percent the day before. The average rate for five-year FRMs slid from 2.22 percent to 2.20 percent. However, it is possible that fixed-interest mortgage interest rates will not go down further in the coming months, and may remain stable. Ultimately, there is no sure way to predict how mortgage interest rates will develop.

6. Positive effects on rents

A lowering of the key interest rate impacts the average mortgage interest rate of banks, which in turn impacts the reference rate for rents. Over the mid-term, key interest rate reductions can result in lower rents. However, the change in the SNB’s key interest rate will not likely result in lowering of rents in 2024. The change will only translate into cheaper rents next year, at the earliest. Future adjustment to the key interest rate will also play a role.

More on this topic:
Compare Swiss savings accounts now
Compare Swiss fixed deposit accounts and medium-term notes
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Expert Benjamin Manz
Benjamin Manz is CEO of and an independent expert on banking and finance.
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