What Higher Eurozone Interest Rates Mean for Expats in the Second Half of 2026

For much of the last few years, the conversation around European interest rates has focused on when rates would start falling and how quickly they might come down. In reality, as we have stated in several articles, our collective perception of ‘normal’ interest rates has been skewed by that long period of very low and sometimes negative interest rates from 2009 all the way to the post Covid spike in 2022.

In June 2026, that conversation changed again.

The European Central Bank raised its three key interest rates by 0.25 percentage points. This took the deposit facility rate to 2.25%, the main refinancing rate to 2.40% and the marginal lending facility rate to 2.65%. The ECB explained that renewed inflation pressures had influenced the decision, while also making clear that it was not committing to a predetermined path for future rates.

The objective for the ECB is to control inflation at between 2-3%. This will over time be reflected in the interest rate and in reference to that the current interest rate is right in the middle of that band. 

For expats living in the eurozone, the important question is not whether this was the final increase or whether another move will follow. It is what the current environment means for your own cash, borrowing, investments and financial plan.

Higher rates may help your cash, but do not assume your bank will do the work for you

Higher central bank rates can support better returns on savings, but the benefit is not always passed on equally.

Some banks adjust their savings rates quickly. Others move slowly or reserve their better rates for fixed deposits, new customers or accounts with more restrictions. This means leaving a large cash balance in the same account through habit may result in a significantly lower return than you could receive elsewhere.

This is particularly relevant to expats, who often retain bank accounts in more than one country or hold cash in several currencies. Review what each balance is for, how accessible it needs to be and what interest it is currently earning.

Cash for emergencies, planned expenditure or a potential move should normally remain readily accessible. For these funds, the focus is not the return. The benefit to you is the peace of mind that you have a cash reserve to deal with unexpected events. This is especially important for international professionals should you need to move countries at short notice.  

Cash intended for use several years from now may deserve a different approach. If you have larger amounts of cash, beyond what we would recommend as emergency reserves, you face the issue that you are actually losing money, or reducing your wealth, by the difference between your bank return and the inflation rate. Cash as an investment, is therefore actually quite risky. 

The ECB’s June projections expected eurozone inflation to average 3.0% in 2026, before easing to 2.3% in 2027 and 2.0% in 2028. This is in the target range which would suggest we should not expect any improvements in bank cash returns. 

Cash has an essential role in a financial plan. The danger is allowing short term security to become a long term drag on growth. 

Mortgage costs do not move in perfect step with the ECB

If you have a variable rate mortgage, a loan linked to a reference rate or borrowing that needs to be refinanced, higher rates may feed into your costs relatively quickly.

Fixed mortgage rates are more complicated. They are influenced by market expectations, funding costs, competition between lenders and the length of the fixed period, rather than simply copying the ECB’s latest decision.

This is why waiting for an anticipated rate cut does not guarantee that a particular mortgage deal will improve. Markets often price in expected central bank decisions before they happen.

If your mortgage is due to be reviewed in one to two years, it is sensible to understand your options early. That does not necessarily mean changing immediately. It means knowing when your current arrangement ends, whether early repayment penalties apply and how a higher payment would affect your wider cash flow.

For expats, there may be added considerations around residency, foreign income, currency and future relocation plans. A mortgage that is comfortable while you remain in one country may be less flexible if you later move again and depending on which country you are living in, you may not be able to continue to maintain your mortgage when you become a non-resident. It can be complex, so speak with us to see how this fits in with your financial plan. 

Review expensive debt before concentrating on investment returns

Higher rates make the cost of debt more visible.

Credit cards, unsecured loans, overdrafts and variable rate borrowing may now be taking a larger share of monthly income. In some cases, paying down expensive debt can provide a clearer financial benefit than searching for an investment expected to outperform it. Many people feel it is not as exciting as you don’t see an investment account growing, but if your debt interest rate is high you can look on that as your effective rate of return. And as you bring it down, it can give peace of mind and motivation to keep going. 

This does not mean all debt should automatically be repaid. A low rate mortgage, for example, should often be considered differently from an expensive revolving balance. The right decision depends on the interest rate, tax treatment, liquidity requirements and your wider objectives.

The useful exercise is to list each debt, its current rate, repayment date and purpose. It is difficult to manage borrowing strategically when the true cost is hidden across several accounts. We do this as part of your financial plan and can discuss this with you. 

Do not let higher cash rates become an excuse to postpone long term investing

When savings accounts pay more, holding cash feels easier.

That can be beneficial for short term planning, but it can also encourage investors to remain on the sidelines indefinitely. The return on cash is visible and relatively stable. Investment returns are uncertain and arrive unevenly. This makes cash psychologically comfortable even when it is unlikely to meet a long term objective.

The correct comparison is not simply today’s savings rate against this month’s investment performance.

The comparison should reflect your timeframe, the effect of inflation, taxation and the return required to achieve your goals. Money intended for retirement in fifteen or twenty years has a very different job from money intended for a property deposit next year.

We regularly advocate separating money according to purpose. This allows you to retain adequate cash for security and flexibility without treating every euro as though it must avoid short term volatility.

Keep interest rate decisions within the wider plan

The ECB’s rate increase matters, but it should not become the sole driver of your financial decisions.

Economic forecasts remain uncertain. In June, the ECB projected eurozone growth of only 0.8% in 2026 alongside higher inflation, illustrating the difficult balance between controlling prices and supporting economic activity.

Trying to predict every future rate decision is unlikely to produce a reliable plan. Most of us also have a recency bias. Whilst we are up to date on the latest news and sense the importance of these ECB decisions, ask yourself if you can recall the decision made in June 2017, how you responded and the impact it had. Most could not which illustrates this point. These decisions are important and can be impactful, but often not in isolation. 

A more useful response is to review the areas you can control:

Are your cash reserves appropriate and earning a reasonable rate?

Can your budget absorb higher borrowing costs?

Is expensive debt being managed deliberately?

Are your investments still aligned with your timeframe and objectives?

For international professionals, these questions should also be considered across currencies, countries and possible future moves.

Interest rates will rise and fall over the course of a long term financial plan. Your structure should be resilient enough to operate in both environments.

If you would like to review how your cash, investments and borrowing fit together, speak with us. We can help you consider the current rate environment in the context of your international circumstances and long term objectives.