Interest rates have been negative in Europe for years. But it took the flood of savings unleashed in the pandemic for banks finally to charge depositors in earnest.
Germany’s biggest lenders, Deutsche Bank AG and Commerzbank AG, have told new customers since last year to pay a 0.5% annual rate to keep large sums of money with them. The banks say they can no longer absorb the negative interest rates the European Central Bank charges them. The more customer deposits banks have, the more they have to park with the central bank.
That is creating an unusual incentive, where banks that usually want deposits as an inexpensive form of financing, are essentially telling customers to go away. Banks are even providing new online tools to help customers take their deposits elsewhere.
Banks in Europe resisted passing negative rates on to customers when the ECB first introduced them in 2014, fearing backlash. Some did it only with corporate depositors, who were less likely to complain to local politicians. The banks resorted to other ways to pass on the costs of negative rates, charging higher fees, for instance.
The pandemic has changed the equation. Savings rates skyrocketed with consumers at home. And huge relief programs from the ECB have flooded banks with excess deposits. Banks also have used the economic dislocation of the pandemic to make operational changes they have long resisted.
Alex Bierhaus, a managing director at a fintech company in Düsseldorf, received a letter from his bank, a unit of Commerzbank, last year saying it was going to start charging a 0.5% interest on deposits above €100,000, equivalent to $121,000.
To avoid paying, Mr. Bierhaus, whose savings ballooned without trips to restaurants and vacations, shifted some €60,000 to a bank in Italy and one in Sweden through an online platform called Raisin, which allows customers to shop for better rates at banks across Europe.
Mr. Bierhaus can’t even remember the name of his new banks but said he felt comfortable given that Europe has domestic guarantees on all deposits up to €100,000. He is receiving 0.8% interest on the one-year fixed deposits, similar to a certificate of deposit.
“I wouldn’t mind receiving nothing for my deposit, but being asked to pay is just too much,” the 34-year-old said, adding that he plans to use the money to buy a house before the birth of his second child this year.
“Our primary objective is not to collect such a deposit, but to advise and reallocate funds to other forms of investment,” said a Commerzbank spokesman.
According to price-comparison portal Verivox, 237 banks in Germany currently charge negative interest rates to private customers, up from 57 before the pandemic hit in March of last year. Charges range between 0.4% and 0.6% for deposits beginning anywhere from €25,000 to €100,000.
Raisin said business in Germany, its largest market, has risen sharply as more banks have begun charging for deposits. The number of customers using its platforms across Europe rose more than 40% to 325,000 in 2020. The volume of deposits that moved through the platforms rose by 50% to about €30 billion.
It also works with a handful of banks in Germany and elsewhere in Europe, embedding its service inside bank websites, making it easy for customers to shift their money.
Deutsche Bank, which charges a negative rate to new customers holding more than €100,000, bought a stake in a Raisin competitor called Deposit Solutions. Deutsche Bank clients use Deposit Solutions to pick deposit offerings currently at five different banks, including in Italy, Austria and France.
“Our job is to show clients ways to earn a return on their investments despite negative interest rates,” a Deutsche Bank spokeswoman said.
The ECB’s deposit rate, which it charges banks, is minus 0.5%. The central bank has signaled it is unlikely to change that level anytime soon. Government bond yields, against which borrowing costs are measured, are negative despite a recent uptick. German 10-year bunds yield minus 0.3%. Similar U.S. bonds yield 1.5%.
Banks in Germany are particularly hit by negative rates because Germans are big savers. About 30% of all household deposits in the eurozone are in Germany, according to the ECB. Last year, deposits in the country rose 6% to a record €2.55 trillion as people became wary of spending under the pandemic or simply had nowhere to spend, with restaurants closed and travel restricted.
In Denmark, where interest rates were cut to below zero two years before the eurozone, banks have gone from charging wealthier clients to smaller ones over the past year. The Danish central bank estimates about a quarter of the country’s depositors are currently being affected.
Nordea Bank Abp recently lowered the deposit threshold for a 0.75% charge to 250,000 danish krone, equivalent to $41,000, from 750,000 danish krone as the pandemic will likely prolong the era of negative rates.
The flip side for customers there is that in some cases, while they pay to deposit money, they don’t have to pay anything to borrow. Nordea in January started offering 20-year mortgages at 0%.
Article originally appeared here