What does a negative interest rate mean

Negative interest: what penalty interest means to you

Interest rates around the world are low - or even negative. We explain what this penalty interest means for you as a saver and what you can do if you are affected.

Since the financial crisis, banks around the world have lowered their interest rates ever lower. Some even now charge negative interest, also known as penalty interest. This applies to current accounts and call money accounts, but also to some clearing accounts in securities accounts.

However, not all bank customers are equally affected. We explain what is allowed for interest rates, why banks and savings banks charge negative interest rates in the first place and how you can avoid them.

What are negative interest rates?

Negative interest, also Minus interest or called penalty interest, ensure that your credit shrinks. Instead of getting money from the bank when you store your savings there, you have to pay for it the other way around. Banks speak of a "custody fee".

Some banks and savings banks charge up to minus 0.5 percent per year. Let's say you have 5,000 euros in the account. Then after a year there were still 4,975 euros left over.

By the way: Negative interest isn't new at all - we just don't recognize you right away. Because even if banks show positive interest rates on your balance, that doesn't mean that your money has actually increased in value. Because inflation is not yet included in these so-called nominal interest rates. It indicates how much the prices for products are rising. If inflation is greater than interest, your money in the account will be worth less in real terms.

Why are there negative interest rates?

In short: because the banks themselves have to pay negative interest ("custody fees") when they park money at their central bank. In the European Central Bank (ECB) is the so-called Deposit rate negative for some time - and now more and more banks are passing this penalty rate on to their customers.

The ECB set the deposit rate to below zero for the first time in June 2014 - at that time to minus 0.1 percent. Since then, it has decreased in several steps, most recently in September 2019 to minus 0.5 percent.

The ECB uses it to punish the financial institutions if they hoard funds from it. Instead, they should pass these on as loans to the economy in order to ensure higher inflation with more money in circulation. This in turn should boost the economy and promote economic growth.

Inflation: The primary goal of the ECB is to keep prices and the currency in the euro countries stable. To do this, it is aiming for an inflation rate of just under two percent in the medium term. The argument: prices that are too low slow down economic growth. If inflation is too low, central banks usually help with interest rate cuts.

Negative interest rates ensure, among other things, that Companies can continue to borrow money cheaply. In addition, the ideally increasing amount of money has a positive side effect: the euro remains cheap in a global comparison of currencies - which in turn ensures that other countries can more easily afford goods from Europe and that exports from the euro zone increase.

However, the negative rates also help keep market rates low, so financial institutions They tend to generate less income with loans. If the banks' profits suffer too much, they may be less willing to lend - or they pass the negative interest on to savers and punish them for parking their money in bank accounts.

In Germany, savings banks, Volksbanks, Raiffeisenbanks and other institutes have been complaining for a long time that ultra-low interest rates are gnawing at their earnings. Insurers, on the other hand, are having increasing problems meeting the guarantee commitments for their customers due to the long period of low interest rates. Consumer associations also fear that the institutes will increasingly pass the costs on to their customers.

Which banks charge negative interest rates?

The general rule is: So far, only a few customers in Germany have had to pay negative interest. Because even if banks and savings banks charge this penalty interest, this usually only applies to new customers. If a bank wants to have negative interest rates from existing customers too, it has to agree this with them individually. This emerges from a ruling by the Tübingen Regional Court. In addition, penalty interest is often only due when the balance is high.

In addition, most banks grant an allowance. Negative interest is often only due if you have more than 100,000 euros in the account. At some institutes, however, the exemptions are also lower.

The list of banks that charge negative interest rates is now long. In January 2021, more than 200 banks published penalty interest rates for private customers on their website, as well as more than a dozen other required fees for the classically free call money account.

If the interest rates are equal to or close to zero, this effectively results in a negative interest rate because inflation devalues ​​money. You can find out which institutes these are in detail. Comparison portals such as Verivox or Smava, which regularly update their lists.

Are there negative interest rates on the checking account?

Yes, that is possible. You can tell whether your bank charges negative interest on checking accounts Price list or the Product overview remove.

But even if you don't have to pay negative interest, your money can lose value - if you do Account management fees or pay for certain services such as withdrawals. These fees are also becoming more and more common at banks.

Is there any penalty interest on overnight money?

This is also happening more and more often - however only for new customers. A ruling by the Tübingen Regional Court states that customers with old contracts do not have to expect that positive or "neutral" interest rates for an ongoing contract will suddenly turn into negative interest rates. In the case of new contracts, however, this is possible.

In general, overnight money is a form of investment in which the interest rate can change - depending on the banks' discretion.

What about savings accounts?

On savings accounts Banks are not allowed to charge negative interest rates - and no fees either. So it could be that the former investment darling of the Germans will be a little more attractive again.

Is there negative interest on the clearing account of the custody account?

This is also possible with securities trading. An increasing number of Online brokers now asks her customers to checkout. Flatex made the start. There, users have had to pay interest of minus 0.5 percent since 2017 - from the first euro.

Other providers also charge negative interest for the clearing account, but only start doing so as soon as there is more than 15 percent of the total portfolio or the deposits have reached a certain absolute level.

What applies to loans and mortgage lending?

The phase of low interest rates does not only have negative sides: You benefit from it when you borrow money for a loan. However, interest rates on loans have not yet fallen into the minus range - and that is not to be expected. Because the institutes also have to pay for sales, auditing or disbursement of the loans.

Only at Installment loans there every now and then Promotionsto attract new customers. However, they usually only apply to low amounts and certain terms.

But whoever actually gives loans at negative interest rates on a regular basis is that state development bank KfW. So if you plan to build or renovate a house or apartment in an energy-efficient manner, you do not have to repay the loan in full.

What can I do about penalty interest?

You don't just have to accept negative interest rates. Instead, you can transfer your savings from the current account or call money account - for example by switch to a provider with better conditions.

In general, however, you should not leave all your assets dormant in this type of account. A Nest egg of around three net monthly salaries is sufficient to have money on hand quickly in an emergency. You should invest the part of your savings that you no longer need.

It works comparatively comfortably and cheaply with one, for example Savings plan in ETFs. These are special action funds, also called index funds, in which a computer algorithm replicates a stock index such as the Dax, the Eurostoxx 50 or the MSCI World. An ETF therefore performs almost exactly like the index it tracks.

If you stay invested for at least ten, or even better, 15 years, you can get nice returns - and you've outsmarted negative interest rates and depreciation.

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