Heidelberg. In July 2022, the European Central Bank increased key interest rates again for the first time after more than eleven years of decline. This historic rate hike marked the end of the negative interest age for savers. The turnaround in interest rates has unleashed intense competition for savings deposits among banks. But even a year later, a fifth of the credit institutions are still not paying any interest on the call money. This is shown by current analyzes by the comparison portal Verivox.
Zero interest rates are persistent – especially at regional banks
“Almost all credit institutions quickly abolished their negative interest rates after the ECB’s penalty interest on bank deposits ended a year ago,” says Oliver Maier, Managing Director of Verivox Finanzvergleich GmbH. “But even a full year later and after eight increases in key interest rates in a row, a considerable number of banks still offer savers no interest at all on their call money accounts.”
Of a total of 738 banks in the Verivox evaluation, 141 do not pay their call money investors any interest. This corresponds to a share of 19 percent. Zero interest rates are most widespread among the regional cooperative banks, i.e. the local Volksbanks and Raiffeisenbanks as well as the PSD and Sparda banks. Of the 350 institutions in this group of banks evaluated, 80 have an overnight interest rate of 0.00 percent for an investment amount of EUR 10,000. As a result, almost a quarter (23 percent) of banks in this sector offer no interest. But even at 58 out of 309 (19 percent) savings banks, call money investors go away empty-handed. On the other hand, only 3 of the 79 evaluated nationwide active banks do not pay any call money interest, which corresponds to a share of 4 percent.
Overnight and fixed-term interest rates have multiplied since the interest rate turnaround
Even if some banks are still holding back, the market average interest rates have risen significantly as a result of the interest rate turnaround – especially among banks that operate throughout Germany. The average interest rate for call money offers nationwide is currently 1.31 percent. At the time of the first interest rate hike a year ago, interest rates were just above zero (at 0.05 percent at the beginning of August 2022). Customers of the savings banks and the local Volks- und Raiffeisenbanken currently have to be content with an average interest rate of 0.36 percent on the call money account.
“With the offers available nationwide, savers benefit from the tougher competition among market participants,” says Oliver Maier. “In order to hold their ground in the competition for savings, the financial institutions feel compelled to constantly improve their conditions. Savings banks and Volksbanks, on the other hand, speculate much more on the loyalty of their customers.”
These differences are also clear when it comes to fixed-term deposits: fixed-term deposits with a term of two years currently yield an average of 2.96 percent for banks that are active nationwide. In a year-on-year comparison, interest rates have almost quadrupled: at the beginning of August 2022 they were still 0.82 percent. With 2.20 percent at the savings banks and 2.27 percent at the local cooperative banks, the average interest rates of the regional banks are also noticeably lower for two-year time deposits.
Inverted Yield Curve: Is the Rally Over Soon?
In the market segment of offers available nationwide, long-term time deposits with a term of five years currently have an average interest rate of 2.89 percent – and are therefore slightly lower than time deposits with a term of only two years. When long-term interest rates are lower than interest rates for shorter-dated investments, this is called an inverted yield curve. It could signal that the zenith of the rise in interest rates may soon be reached.
“If the banks are hardly offering interest premiums for long-term investments, that is an indication that they are assuming that the interest rate rally will slow down in the medium term,” says Oliver Maier. “We believe that interest rates for medium- and long-term time deposits in particular should stabilize at a high level in the near future. In the case of short-term time deposits and overnight money, however, the end of the road has not yet been reached and interest rates are likely to continue to rise in the near future.”
Top call money brings over 300 euros more interest
German banks are currently offering up to 3.5 percent interest on call money accounts. Anyone who invests EUR 10,000 under these conditions for a year can look forward to interest income of EUR 350 – EUR 314 more than with an investment at the current average interest rate of the savings banks and Volksbanks.
“Even for bank customers with a savings account, switching to a call money account with good interest can be a sensible option,” advises Oliver Maier. According to Bundesbank figures, German private households currently have a total of around 460 billion euros in savings accounts with a three-month notice period (eg savings books) and only receive an average interest rate of 0.39 percent. If you shift 10,000 euros from a savings book with this interest rate to a call money account with top conditions, you can collect 311 euros more interest per year.
methodology
For the interest rate analysis, Verivox evaluated the conditions of around 800 banks and savings banks for an investment sum of 10,000 euros. All banks with overnight and time deposit offers that publish their interest rates freely accessible on their website are taken into account – including 738 with at least one overnight deposit offer. For the zero interest rate analysis, the interest rates were rounded to the second decimal place. Banks with an overnight interest rate of 0.001% were therefore assigned to the institutes with zero interest. Some banks don’t publish their interest rates online, including possibly others with zero interest rates.
In the regional sector, a distinction is made between savings banks and cooperative banks. There are individual institutions in both groups of institutes that offer their overnight allowances throughout Germany and have therefore been assigned to the nationwide offers. The reporting date for the evaluations is July 20, 2023.