Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

"Take Deposits Elsewhere": What is money really worth if banks don't want it?

Banks in Germany Tell Customers to Take Deposits Elsewhere

Below are a few edited excerpts from a current article in the Wall Street Journal:
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 have told new customers since last year to pay a 0.5% annual rate to keep large sums of money with them. 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.

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.

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.

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.

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%.


  • edited March 2021
    20-year mortgages at 0%.
    Finance turned upside-down. The message is: "Why the hell are you SAVING? SPEND! SPEND!" Seems to me, the only thing keeping inflation in check (except for a big buncha different things!) is Central Banks, stomping on rates. I remember a picture from long ago. A German fellow in Weimar days was taking a wheelbarrow full of Marks somewhere... He was taking them NOT to buy wood for a fire. It was a cheaper proposition to just burn the Marks. Ya.
  • Hard to image the German are keeping cash at home. Are they trying to get them invested in their stock market? What about their corporate bonds?
  • Note that in general, Germans do not invest heavily in the stock market, rather they invest very little, more like on average 15% of their wealth

    Most invest in insurance type products from Allianz etc or regular savings

    Stock market is considered very risky and goes against the practical german approac

    I believe Lewis B had a recent comment where he stated he found it interesting that many americans put their life savings into the stock market and its unknown, non guarantee return


    Baseball Fan
  • Thank you. Learn something every day.
  • It seems like an alternative to a bank for Germans would be a Money Market fund, perhaps in a brokerage account.
    Unless the MM will also charge to hold your money.
  • edited March 2021
    But we're really not discussing the thing that I find most worrisome: if banks in major Western democracies have no use for cash, what does that imply about the viability of cash as a trading medium? I believe that never before in my 81 years has such a situation existed, certainly not here in the US.

    Isn't there a distinct danger that at some point other financial entities would begin to feel the same way? And if something like that gets started, wouldn't there be an almost immediate run-for-the-door panic? And actually, where would anyone run to?

    It seems to me that the entire financial value system as we have known it is tottering on a very dangerous balance point.

    I know that many of you are much more financially astute that me, and I'd really appreciate your comments on all of this.

  • dstone42 said:

    It seems like an alternative to a bank for Germans would be a Money Market fund, perhaps in a brokerage account.
    Unless the MM will also charge to hold your money.

    (a) In order to avoid a negative yield, Fidelity Management & Research Company LLC (FMR) may reimburse expenses or waive fees of Fidelity® Government Cash Reserves. Any such waivers or expense reimbursement would be voluntary and could be discontinued at any time. There is no guarantee that Fidelity® Government Cash Reserves will be able to avoid a negative yield.
    FDRXX Summary Prospectus

    The only reason why most MMFs in the US aren't already charging investors money is that they're being subsidized. What's the motivation to subsidize returns in a country where the banks are charging savers to hold their cash?

    Even in the US, I've seen small company 401(k)s offering MMFs with negative yields. These were 401(k) annuities. Though the MMFs themselves had a positive return, once the annuity wrapper fee of the 401(k) was added in (or should I say subtracted out), the net return was negative.

  • I have read reports this morning that the Fed is considering another round of Operation Twist with the goal of raising short rates and lowering long rates.
  • edited March 2021
    One could argue that the real issue is cash or bank account yield versus the inflation rate to get to a real rate of return, which has often been negative historically. Although even that is misleading because ultimately it is only one's own personal inflation rate--what you as a consumer actually spend money on--that matters.

    Regarding my comments Baseball_Fan alluded to, it is true I find it fascinating that Americans depend so heavily on a vehicle that in prospectuses has a par value of 0.01 or one penny--stocks--to secure our retirements. We simply have "faith" stocks will go up when we buy them as there is no legal guarantee whatsoever that they will, and their issuers can go bankrupt and have no obligation to pay us anything whatsoever.

    That said, between stocks and bank accounts on the risk spectrum, there are numerous other securities, most obviously bonds. Bonds do have a legal guarantee to pay out a certain amount. The problem of course now is bonds yield very little too, but maybe better than inflation in some cases.

    All of which is to say, yes the government wants you to buy stocks and borrow money cheaply. One must ask: Who does that benefit?
Sign In or Register to comment.