The expert calls for the creation of “do-it-yourself interest rate protection” to protect your finances instead of what banks offer.
- Rising prices and the projected rise in interest rates have caused many concern. The expert urges you to now go through what products or services could be exchanged or used less.
- The Secretary-General of the Consumer Union warns that the terms of the interest rate caps offered by banks may come as a surprise.
- The union prefers consumers to do so-called interest rate protection, which puts money into savings on a monthly basis.
– The most important thing for the consumer is to find out what their own money is enough for. I would argue that many of us do not know that. Surprisingly, large sums of money can go somewhere, the Secretary General of the Consumer Association Juha Beurling-Pomoell says.
He advises those worried about rising prices to make a listing of all his expenses for a couple of weeks. This is easily accomplished, at least if you mainly pay for the purchase with a card. Store bonus cards also help list purchases, even if you make them in cash. When you check out the prepaid card at the checkout, the purchases are accurately logged into the store system, where they are available to the consumer.
If you do not use almost any cards, you will need to save all receipts for purchases for a couple of weeks to check your expenses accurately, and check your online banking account information for at least a month.
Only when you know exactly where the money is going can you start thinking about where you would save.
Accurate listing of expenses may seem like a tedious and laborious hassle, but according to Beurling-Pomoell, it is the best way to prepare for a possible sharp rise in prices.
Hard rise
Housing costs are usually the largest item of expenditure in the economy. A person living in a rental apartment can achieve significant savings by changing the apartment. Ismo Pekkarinen / aop
Many consumers may have already woken up to the tightening economic situation in recent months, as inflation has risen sharply to record levels. At the same time, the price of many everyday commodities has risen sharply. For example, fuels now cost almost a euro more per liter than a year ago. The price of many foods has risen sharply recently, and the coffee package, for example, now has to shell out about twice as much as a year ago.
The price of food is expected to rise at a faster pace. Pellervo Economic Research estimates in March that food prices will rise by about 11 percent this year. This would be clearly faster than headline inflation. The prices of some individual products can rise by as much as tens of percent. Prices are expected to rise in dairy, meat and cereal products, but also in processed foods.
A similar rise has not been seen since the 2008 recession, when world food prices rose sharply.
Minister of Economic Affairs Mika Lintilä (middle) anticipates in March in Yle food prices will rise even more sharply. According to Lintilä, the price of a food basket can even double.
In addition to the bounce in rising inflation and declining purchasing power, consumers’ wallets are still threatened by rising interest rates. In the market, interest rates are expected to rise to as high as 2% in a year’s time. For example, with a EUR 200,000 mortgage and a 20-year loan period, a 2% increase in interest rates would mean a rise of just under EUR 200 in the monthly installment of the loan.
“No worries”
Even a small reduction in car use may lead to sufficient savings in anticipation of rising prices. Ismo Pekkarinen / aop
Beurling-Pomoell of the Consumers’ Association says that once the expenditures of the economy have been carefully determined, one can start to see what could be put to the competition. By this he does not only mean a comparison of an electricity company or other service that is familiar to many, but everything that is paid for.
– First we think about where the most money goes. It can be even an apartment rent of 1500 euros. Well, at the moment there is a tenant’s market, so by changing your apartment you can save a lot, he advises and urges you to think about whether you could get along with a smaller apartment.
The next big expense in many households is the car. Beurling-Pomoell calls for consideration to be given to reducing its use. Even a small reduction in regular runs can lead to sufficient savings.
– I have heard that many of those who were working remotely during the Korona era thought they would return to work, but have now decided not to return in order to save on travel expenses. Of course, teleworking is not an option for everyone.
Beurling-Pomoell also cites the example of a person who contacted the Consumers’ Association about cutting costs, who said that he had received a strong motivation to quit smoking from financial discipline. Previously, the closure was not successful.
– He said that he did not want to stop drinking coffee or other loved ones, but realized that he now had a huge motivation to quit smoking so that he would not have to give up those other things.
Beurling-Pomoell emphasizes that the consumer economy is a whole. A rise in prices does not matter if you are able to save on something other than the price of it.
– The end result may be that there is nothing to worry about. And maybe even with good luck, health will rise.
The interest rate cap may come as a surprise
In addition to cutting costs and bidding, Beurling-Pomoell says many are now wondering what assets could be sold off if their own costs go up by several hundred euros a month. Selling unnecessary goods can bring the necessary extra to survive.
Many who are paying for or just taking out a mortgage are now also feverishly considering buying interest rate caps sold by banks to protect the loan from rising interest rates.
Beurling-Pomoell states that the various interest rate cap products are from the banks’ business, which is intended to generate a profit for the banks. He emphasizes that before buying an interest rate cap, you should carefully find out its terms. They may mention, for example, that while the interest rate cap is in force, the loan cannot be repaid in full at no extra cost. Another surprising condition may be that the interest rate rises immediately to the ceiling. The third ill-known condition is that the interest rate cap is usually only valid for a few years or some other limited time.
– Banks offer this fixed rate. The interest rate cap is, in fact, a wrong word. The problem is that in practice they are nothing permanent. Many are also disappointed that they have to pay for it immediately.
Beurling-Pomoell says that he had just received a reply from a bank to a questionnaire about the interest rate cap and that he would have had to pay the so-called a fine if he had repaid the entire loan in the middle of the contract period.
– This could be the case if, for example, I move abroad and sell an apartment.
The repayment of even a large mortgage may suddenly become topical, for example, with the acquisition of an inheritance.
– In practice, they are usually more economically harmful. But it is also possible that they have an economic advantage. If such peace of mind is very important to the consumer and is willing to pay for it, then it may be a good solution. But if you plan to continue to take advantage of cheap interest rates, then don’t take it. The important thing is that you need to be careful and understand what you are buying when you buy an interest rate cap.
My security works
The strong recommendation of the Consumers’ Association for all those concerned about the rise in prices is to build a so-called own interest rate cap or interest rate hedging.
– Play that you take that 2.5 percent interest rate cap and lower even that you pay $ 200 a month. You then put that amount in a savings account and still such that it is not immediately available, that is, as if behind a lock, says Beurling-Pomoell.
He emphasizes that the most important thing is to make a clear plan. The amount does not have to be large either. The most important thing is to get started.
– And if interest rates do not rise, then in time you can pay off the loan.
Beurling-Pomoell, who is worried about rising prices, says that inflation is not really the same for everyone, but can vary greatly depending on where you live and where you move.
– If you live in the countryside behind long distances, drive a lot, smoke tobacco and have oil or direct electric heating, then at the moment your inflation can be as high as 14 percent. If, on the other hand, you live in a rental apartment in the city and travel mainly by public transport, your inflation could be just over two percent, he gives an example.
Beurling-Pomoell points out that the prices of all products have not risen and that the price of poultry meat, for example, has fallen, according to the latest figures.
– The main point is to watch where your own money goes. And the basic rule is to think about what you could change or reduce. If you do not want to give up coffee, you can switch to cheaper coffee.
He also states that if one can no longer afford the things that sustain one’s life, one must be boldly connected to social work. A bad option is to start borrowing money and, for example, take expensive quick tips.