Banks: The Era of Negative Interest Rates Ends – Economy

Was it just a marketing gimmick, or rather a signal to the entire banking industry, and therefore good news for savers in Germany? Perhaps the latter, because ING Germany’s decision to lift negative interest rates for a large part of its private clients, and even for new clients, will probably be continued soon: on July 1, probably before the interest rate change by the European Central Bank (ECB), July is also expected. A subsidiary of a Dutch bank is increasing the limits on credit balances on current and cash on demand accounts for which there is no custody charge, from the current 50,000 to 500,000 euros per account as the institute announced. In this way, ING Germany is communicating to its clients the positive trend in capital market interest rates at an early stage, the bank said.

While the timing and scope of the ECB’s interest rate decisions are still uncertain, equity market interest rates have increased significantly since December. “We were one of the last banks to introduce the escrow fee and were among the first to abolish it,” said Nick Jue, CEO of ING Germany. That said, with the increase in credit limit on giro accounts and additional accounts, 99.9 percent of our customers will no longer be charged a retention fee. The much smaller Oldenburgische Landesbank announced at the end of April that it would raise the limits on exemptions for private customers. For example, in the M current account model, the limit increased from EUR 500,000 to EUR 1 million, and in the XL model, from EUR 500,000 to EUR 5 million.

Negative interest rates have proved to be good business for some banks

Also recently, some major banks and savings banks announced that they would end negative interest rates at the latest when the ECB changes its interest rate policy. It is possible, however, that one of the financial institutions hoped to keep negative interest rates for a little longer, even if the ECB raised interest rates in July. Deutsche Bank was not the only one to realize that negative interest rates can be good business, especially with corporate clients. The largest German ATM generated EUR 489 million in “fee” income last year, of which EUR 44 million came from private customer businesses.

However, competitive pressure may have thwarted any hope of further milking this revenue stream: ING has significant market power in the country with a total of nine million private customers. Banks that stick to negative interest rates will inevitably lose large sums of savings, which will suddenly be unfavorable again in the face of rising interest rates. “If ING Dib’s intention was to shock the competition, they succeeded,” wrote a portal specializing in the financial industry.

Deutsche Bank said it would “adjust” the “fee” in the short term if the ECB changes the interest rate on the central bank deposit. If the negative interest rate ceases to exist at the central bank, they will “abandon the collection of the custody fee altogether”. Some savings banks have issued similar statements. However, Commerzbank only said that “they would react if the increase in interest rates turned out to be permanent”.

More than 400 banks have requested a trust fee

For many savers in Germany – who are also now struggling with relatively high inflation – it would be the end of a painful era: eight years ago, the ECB imposed negative interest rates on commercial banks that parked their money for a short period for the first time. The aim was to stimulate lending and thus the economy. Since then, negative interest has appeared in the world, also known as penalty interest or trust fees. It is now minus 0.5 percent. Initially, most banks conveyed negative interest only to very wealthy customers and businesses. However, over the years, they have increasingly garnered the interest of ordinary private clients, turning the investment world upside down.

According to the financial portal biallo.de, more than 400 credit institutions have recently introduced negative interest rates if customers want to open a new overnight or overnight account with them. Often there is an allowance of € 100,000 on which no negative interest is charged, but € 50,000, € 20,000 or even € 0 are common. In fact, the most recent trend has been that banks will charge penalty interest on existing accounts as well. As they are not allowed to simply introduce them for legal reasons, they have had clients sign an individual contract. The question of whether banks can charge negative interest on normal current account balances has even been the subject of several court cases since then.

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