Before the ECB rate decision: Many banks are canceling negative interest rates

The era of negative interest rates is coming to an end. An increasing number of banks have completely or partially eliminated the so-called custody fees for private clients. Is it worth saving now?

Fewer and fewer banks are charging negative interest. Even before the first projected interest rate increase in the eurozone in eleven years, at least 49 financial institutions had completely or partially eliminated so-called custody fees for private clients. This stems from comparison portal Verivox’s assessment of nearly 1,300 banks and savings banks.

However, many banks are still waiting. According to the data, at least 426 credit institutions still charge negative interest above a certain amount on call or checking account funds (as of July 14). “Once the central bank removes the penalty rate on bank deposits, negative interest rates for savers will also disappear across the board,” predicts Oliver Mayer, managing director of Verivox Finanzvergleich GmbH. “Historic interest rate phenomenon is coming to an end.”

European Central Bank tightens monetary policy

The background is the expected tightening of monetary policy by the European Central Bank next Thursday (21 July). In light of record inflation, the European Central Bank wants to raise key interest rates in the eurozone by 0.25 percentage points. In September, the central bank predicted the possibility of raising interest rates again. Banks will still have to pay 0.5 per cent interest if they stop the money in the European Central Bank. Many financial institutions pass the costs on to customers.

Several large institutions, including Deutsche Bank, have announced that they will cut negative interest rates for their clients in line with the decisions of the European Central Bank. According to Verivox, many banks and savings banks automatically cut negative interest rates if the interest rate adjusts anyway, because they have explicitly tied the custody fee to the ECB’s deposit rate.

Results in detail

According to the assessment, 34 financial institutions have already eliminated negative interest rates since the end of April. Provisions have been significantly increased in 15 other institutions, so that at least the majority of clients no longer have to pay negative interest. Another institute decided to cancel it completely, and the negative interest will not be applied on August 1st.

In addition to online banks, financial institutions that have started the transformation include many regional institutions, including many Sparda and PSD banks as well as Volksbanks and savings banks.

Is it worth saving again?

The expected end of negative interest rates is good news for bank customers. As interest rates shift in the European Central Bank, savers can also hope for higher interest rates on fixed-term deposits and the like. “If interest rates rise in the future, businesses with savings deposits will again become attractive to banks. The first institutions are already in a position to do so,” Mayer explained.

However, high inflation is now chowing down on savings, and it is eating up interest income. Because the so-called real interest rate – that is, the remainder of the interest rate taking into account the rate of inflation – is clearly in the negative range. In order to generate real returns, the interest rate must be higher than the rate of inflation, otherwise the invested money will continue to lose its value.

For 2022 as a whole, the Deutsche Bundesbank expects an inflation rate of 7.1% in Europe’s largest economy. According to its updated forecast yesterday for the current year, the European Union Commission now expects inflation of 7.6% in the eurozone. And up to 7.9 percent in Germany.