Anyone who takes advantage of an overdraft as a bank customer always has to pay more for it. On average, overdraft interest rates are once again well into the double digits, as a study by “Finanztest” shows.
Many credit institutions raised interest rates on overdrafts again on October 1st. This means that overdraft interest rates have now reached an average of around twelve percent, reports the Stiftung Warentest magazine “Finanztest”. “The pace is rapid. Since the end of 2022, they have increased by an average of more than two percentage points,” says Heike Nicodemus from “Finanztest”.
At the end of 2022, the 176 banks and savings banks evaluated still charged an average of 9.94 percent for tolerated overdrafts on current accounts. “The rapid rise in overdraft interest rates is primarily due to the interest rate increases by the European Central Bank,” said Nicodemus. Since July 2022, the monetary authorities have raised the key interest rate ten times to curb high inflation.
Anyone who has a current account can usually overdraw it up to a set amount with the bank’s consent. The amount of the credit limit granted depends on the income and creditworthiness of the customer. It’s usually two to three months’ salary. Depending on the financial institution, the interest is usually debited at the end of the month or at the end of the quarter.
“Credit institutions interest rates increase relatively quickly”
The usual reference interest rate for the overdraft interest rate is the ECB’s key interest rate, and sometimes also the three-month Euribor. “Banks wouldn’t have to implement the increase, but they can,” says Nicodemus. “We found that on average credit institutions raise interest rates relatively quickly. However, when it came to lowering them, things didn’t happen quite as quickly.”
The differences between individual financial institutions are enormous. According to the independent FMH financial consultancy, the range in 80 financial institutions examined ranges from 3.62 percent to 15.49 percent.
Discussion about capping overdraft interest
In view of the rapid increases, the consumer protection ministers of the federal states spoke out in the summer in favor of an upper limit for overdraft interest. The Ministerial Conference gave the Federal Government a corresponding test order. The ministers consider an upper limit of five to eight percent to be appropriate.
Banks and savings banks reject government intervention. Consumers in particular benefit from the fact that the German banking market is one of the most competitive in Europe, explained the German banking industry. “Thanks to a wide range of offers, bank customers have it in their own hands where and under what conditions they want to use an overdraft facility,” argued the umbrella organization of the five major banking associations in Germany.
Installment loan may be a better solution
According to Stiftung Warentest, an overdraft facility with an interest rate of up to ten percent is comparatively cheap. This currently applies to almost 20 percent of 460 account models evaluated. “Everything from 13 percent is expensive, especially for people who use the overdraft facility very often,” says Nicodemus. “I find the more than 15 percent that we found in 18 account models really crazy.”
According to the “Finanztip” expert, anyone who regularly overdraws their account should consider whether refinancing their debt with the help of an installment loan might make sense. On average, this costs about half as much.