analysis
The savings banks are on the rise and are making huge profits. Although they pay savers comparatively meager interest, customer loyalty is high. What explains the success?
“My house, my car, my boat! My horses! My grooms!” The savings bank advertisement from the 1990s, in which two alpha males fight a battle with status symbols, has become almost proverbial. The motto back then: Block instead of spill. Unthinkable today.
For many years, savings banks were considered a discontinued model, especially among those who were about to start their careers. The branches: you don’t need them. Digitalization: overslept. The products: dusty. And now? The Sparkasse, which was declared dead, is back and with power. The savings bank association was able to increase its profits by almost 70 percent compared to the previous year. How could that succeed?
Simple Responsiveness as an argument
Ronia Herghiligin stands in a Sparkasse branch in Kassel. “I’ve been a customer here my whole life. I can still remember that as a small child I used to walk to the savings bank with my money boxes, and then I continued with a pocket money account and now my daily money account,” she says 25 year old student. “I stayed because I could always call here if I had a concern and there was always someone there who could answer my question fairly quickly.”
She is currently planning a semester abroad in San Diego and is getting advice from her advisor at the branch about payment options in America. Many of her friends have accounts with direct banks, but for Ronia Herghiligin that’s out of the question: “Of course I looked around, you get advertising everywhere. But I’ve noticed that, especially with online banks, you always have to wait until you get answers gets, and I don’t have that here.”
Profit at the expense of savers?
Thanks to loyal customers like Ronia Herghiligin, last year’s business figures were exceptionally good. While the surplus in 2021 was 9.7 billion euros, it rose to 11.6 billion in 2022. In 2023 things went up steeply: the end result was 18.2 billion euros. For economics professor Ralf Jasny, the supposed savings bank miracle is not magic, but is simply due to the change in interest rates – and the fact that the savings banks are not passing on the European Central Bank’s significant interest rate increase to their customers.
“You can see it like this: the savings banks make their profits at the expense of their savers, because customers like you and me give money to the savings bank, and it lends the money to people who need loans or invests it with the central bank,” explains Jasny. “And if the savings bank pays half a percent interest on the deposit and on the other hand gets four percent or more, then you have a big difference between them, and this big difference is why the result rose so sharply last year is.”
Others offer higher interest rates
The figures from the comparison portal Verivox support Jasny’s statement: In April 2023, the average interest rates for overnight money offers nationwide were 0.9 percent, and at the savings banks it was 0.2 percent. Six months later, in October, they were already at 1.5 percent nationwide. The savings banks gave 0.5 percent. By March 2024, interest rates nationwide had climbed to 1.8 percent, and the savings banks were only passing on 0.6 percent to their customers.
In view of these figures, the economics professor has some advice: “You should check at least once a year what kind of contract you have and compare: What am I paying for and what can I possibly get as an alternative? It’s not that incredibly stressful, and if so If you do this regularly, you can realize a lot more interest income on your savings.”
Security in uncertain times?
Are savers actually better off if they rely on the products of other banks? Ingo Buchholz, the chairman of the Hessian savings banks, admits that they benefited from the interest rate increase, but defends themselves against the general criticism: “This statement is wrong and obviously refers to overnight deposits. The daily deposits are not a classic form of investment, but rather a form of short-term storage. This means that you cannot save against price increases.”
The savings banks’ approach is different, says Buchholz: “We advise our customers holistically and offer them tailor-made offers that certainly reflect the current interest rate level.” Perhaps it is also due to the uncertain times with crises and wars that millions of people trust the savings banks despite the lower interest rates on offer, because they were also able to increase their current accounts significantly last year. With more than 36 million, they are doing better than ever in their history.