We hear about Euribor constantly, but what is Euribor and how does it influence our lives? And when we invest in crowdfunding, are we also impacted by Euribor?
What is Euribor
Euribor, or Euro Interbank Offered Rate, is a term frequently used in the media, but not always well understood in its entirety.
Euribor is, in practice, a reference rate that is widely used in the European financial market and that directly influences interest rates in a variety of financial products, from real estate credit to various investment and savings solutions.
Euribor is an average interest rate, calculated based on the rates charged by the main European banks when they lend money to each other. Its variation is daily and is influenced by a series of factors, including the monetary policies of the European Central Bank, the supply and demand for credit in the interbank market and general economic conditions in the Eurozone.
How Euribor is presented and how it varies
There are several Euribor rates, with different maturity terms, which serve as a reference for different financial products and are directly correlated with the average terms of these products. The most common rates are Selic for 1 month, 3 months, 6 months and 12 months. Each of these rates influences borrowing costs and investment returns differently. For example, variable rate mortgage loans are often indexed to Euribor 3 months, 6 months or even 12 months, which means that the value of the installments can vary according to fluctuations in these rates. In this case, the chosen Euribor is related to the frequency of updating the interest rates in force for the following period. Therefore, a loan indexed to Euribor 6 months must maintain the interest rate for a period of 6 months. After this period, the 6-month Euribor is consulted again and a new interest rate is set for the next 6 months.
Euribor also affects the profitability of several investment products. Term deposits, certificates of deposit and investment funds that have their returns indexed, directly or indirectly, to Euribor can offer higher returns when this rate is rising, and vice versa.
Euribor rates can be easily consulted at any time on various specialty websites. You can consult the current Euribor and its history at this link.
Investment Returns in Daskapital
Now, if banks are financed on average at the Euribor value, then this is the reason why the profitability rates on savings products are not very interesting, given that a bank does not need to offer more than that to obtain capital.
What Daskapital proposes is something different! Instead of collecting funds from depositors or other loans and then lending them with a margin to companies, as banks do, at Daskapital it is the investors who keep the margin on the loans granted.
Furthermore, through the investment allocation system, investors define the interest rates to be charged. Each investor directly defines the required return values and therefore, the profitability rates will be substantially more interesting. It is worth remembering that Daskapital suggests, on its platform, minimum return values that investors should demand.
If Euribor rises, will Daskapital returns become less interesting?
No. In fact, an increase in Euribor rates must correspond to a proportional increase in profitability rates at Daskapital.
Indirectly, Euribor rates correspond to changes in the cost of money. Thus, a rise in Euribor rates is also reflected in the returns on various financial products, particularly the financing costs of states that are commonly considered to be risk-free investments..
In its formula for recommending minimum required returns to investors, Daskapital uses the yields on German treasury bonds as a benchmark for a risk-free investment to which it subsequently adds the cost of risk specific to the investment in question. Thus, an increase in the cost of money is immediately reflected in Daskapital's recommendation of minimum returns and at the same time a higher requirement than the interest rate for crowdfunding promoters' financing projects.
