Call money: Will the interest rate turnaround reach savers?
Have banks used the higher interest rates primarily to maximize their own profits? A recent study by FMH-Finanzberatung on call money investigated this question - with encouraging results.
"Still zero interest rates at many banks." "Banks are not passing on higher interest rates." You could read headlines like this more often in recent months. While building loans have become more and more expensive with every interest rate hike by the ECB, overnight interest rates at many banks have remained at a very manageable level.
However, a recent overnight money study by FMH-Finanzberatung now shows that the criticism of the banks was - at least in part - exaggerated. In an extensive analysis, we evaluated the banks' new customer offers during the period of key interest rate increases. And the results are quite impressive.
A cautious approach
Our survey also confirms that banks initially reacted very cautiously at the beginning of the development. However, at that time, on July 21, 2022, the ECB had only just abolished negative interest rates and set the key interest rate (deposit rate) at 0.0. Accordingly, only a few institutions felt compelled to launch new customer offers for overnight money at this time.
The next interest rate hikes changed that. In October 2022, ING began offering new customers an interest rate of one percent on call money. At first glance, this was a losing proposition, as the interest rate on deposits with the ECB was still 0.75 percent at the time. However, as the next increase to 1.5 percent took place on October 27, 2022, the negative effects for ING remained manageable. Instead, it benefited from a massive influx of new customers.
First one, then (almost) all
ING's initiative was also a blessing for savers: Now other banks also felt compelled to offer their customers better conditions - especially new customers. A few months later, it was once again ING that made a name for itself with an interest rate of two percent (the ECB deposit rate at the time) and once again provided important impetus. Now even online brokers started to raise interest rates.
This mechanism was repeated several more times: in June 2023, most of the new customer offers from the banks surveyed were still just below or just above the respective ECB deposit rates.
Breathing space until 2024
In the meantime, we are already seeing new customer offers on the market for 3.75 or even 4 percent interest - see FMH overnight money comparison. However, this should bring peace and quiet for the time being. At least until the ECB makes an upward adjustment in the new year if the inflation figures do not fall as hoped.
However, we at FMH are already observing another interesting development. As expected, only a few new customers have consistently switched from one top new customer offer to the next. Instead, most have held out for the three or six month guarantee period.
However, if the (new) existing customers are fobbed off with 1.25 percent or less, the game starts all over again and savers think again about looking for better offers.
Banks that do not differentiate between interest rates for new and existing customers are now benefiting from this trend. The background: even yield-oriented investors want to settle down at some point. Many hope that they will fare better in the long term with "total interest banks" than with those that only ever entice new customers with attractive interest rates. However, it remains to be seen whether this hope will come true.
Profits on the one hand, losses on the other
Since the interest rate turnaround, the banks that have raised their interest rates very slowly have definitely made good money. They have probably suffered a loss of customers and confidence. Economically, however, this tactic has paid off.
Those banks that entered the new customer business very early have gained customer attention and also high interest rate differential gains compared to the ECB deposit rates. They were subsequently able to benefit from the regular ECB key interest rate hikes and the newly collected customer deposits.
Further information on the overnight money study can be found here.
Max Herbst is the owner of FMH-Finanzberatung, which has been providing independent interest rate information since 1986.
- Despite the ECB's interest rate hikes, many banks have not passed on the higher interest rates to their consumers in the form of increased interest rates on call money or savings accounts.
- The recent overnight money study by FMH-Finanzberatung found that while banks initially reacted cautiously, they eventually started offering better interest rates to new customers due to competition, such as ING offering a 1% interest rate in October 2022.
- Banks that have been slow to raise interest rates have made a profit by retaining their existing customers, while those that entered the new customer business early have gained customer attention and higher interest rate differentials than the ECB deposit rates.
- The ECB's interest rate turnaround has also provided an opportunity for savers to find better fixed-term deposit and savings account rates, with some banks now offering interest rates as high as 4%.
Source: www.ntv.de
