Status: 05/10/2022 2:12 p.m
One of the largest banks for private customers abolishes the penalty interest on current and overnight accounts for almost all customers. Other institutes are likely to follow the example of the Dutch ING.
For bank customers of ING in Germany, negative interest rates, in banking German, “custody fee”, should be history in a few weeks. This fuels hopes among savers that many competitors who are currently still charging negative interest will soon follow suit.
The German subsidiary of the Dutch ING Group has announced that as of July 1, the allowances for credit balances in current and call money accounts will be increased from the current EUR 50,000 to EUR 500,000 per account. According to ING Germany, this eliminates the custody fee for 99.9 percent of customers. So far, the bank has charged this custody fee of 0.5 percent per year for amounts that exceed the allowance of EUR 50,000. According to the bank, it has more than nine million customers, making it the third largest bank in Germany.
Penalty interest at the institutes usual
In recent years, other banks have also gradually introduced penalty interest on account amounts above certain allowances – usually also at a rate of 0.5 percent. This interest is also due, for example, at Commerzbank, Deutsche Bank or Postbank on amounts in current accounts above 50,000 euros. For money market accounts, Deutsche Bank and Postbank charge a 0.5 percent custody fee for amounts over EUR 25,000.
Negative interest rates are now also common at many savings banks and Volksbanks. DKB, one of the largest direct banks with five million customers, introduced the custody fee for new customers with an account deposit of EUR 25,000 or more at the end of 2021, but granted more generous allowances for existing customers.
Banks want to alleviate the slump in earnings
With the introduction of negative interest rates, the commercial banks wanted to improve their weak earnings and the era of low interest rates in the euro area. The key interest rate of the European Central Bank (ECB) has been zero percent for around five years. Accordingly, the income from interest rate transactions by banks has turned out to be increasingly meager in recent years.
The ECB now charges negative interest of 0.5 percent annually for money parked by commercial banks at the central bank – this is the so-called deposit rate. The commercial banks, in turn, want to compensate for this penalty interest by charging private customers accordingly. For the first time, the ECB introduced a penalty interest rate for the banks of 0.2 percent per year in 2014. In the same year, the Skatbank from Thuringia, which belongs to the cooperative banking system, then demanded a custody fee from wealthy customers.
ECB should end zero-interest era in summer
The era of zero and negative interest rates is now coming to an end. This has now been signaled by representatives of the ECB. “As things stand today, I assume that we will be able to raise interest rates for the first time in July,” German ECB Director Isabel Schnabel told the “Bild” newspaper last week. According to Bundesbank boss Joachim Nagel, there is a need to hurry: “The time window that is now opening for the first monetary policy measures is closing so slowly.”
The main reason for the upcoming rate hikes by the central bank is to combat inflation, which has recently accelerated significantly. In Germany and the entire euro zone, inflation has soared to around seven percent year-on-year. They have been driven in recent months by sharply higher prices for energy, but also for food.
As a result, the currency watchdogs around ECB boss Christine Lagarde have come under pressure to act. Many experts are sure that the next ECB meetings in June or July will see a first rate hike. The head of the Finnish central bank, Olli Rehn, brought the July date into play a few days ago and proposed a rate hike of a quarter of a percentage point for the deposit rate.
Continued depreciation of savings
ING has already created facts for customers. “We are keeping our promise to abolish the custody fee once the negative interest rates are eliminated for almost all customers even before the European Central Bank makes a decision,” says CEO Nick Jue. The ING should thus initiate a trend reversal for many banks. In April, the Oldenburgische Landesbank (OLB) announced that it would increase the allowances for private customers “very significantly” – for some current account models to up to five million euros. The savings bank system had already announced that it wanted to eliminate custody fees as soon as the deposit rate for banks at the ECB reached positive territory. The DKB made a similar statement a few days ago.
It remains to be seen whether the end of negative interest rates is really “good news for savers”, as ECB Director Schnabel described it last week. In view of the high inflation rates, the elimination of a negative interest rate of 0.5 percent does not mean any real relief for users of overnight or fixed-term deposit accounts. It may be years before these yield significant positive interest rates again – and even then interest rates could still be well below the rate of inflation. So the real depreciation of savings continues.