Frankfurt The direct bank ING Germany with nine million customers abolishes negative interest and thus sets an example in the German financial sector. On July 1, the online bank will increase the allowances for credit balances on current and call money accounts from the current 50,000 to 500,000 euros, as the bank announced on Tuesday. “With the increase in the allowance for credit balances on the current and extra accounts, the custody fee will no longer apply for 99.9 percent of our customers,” said CEO Nick Jue.
According to its own statements, the bank is thus passing on the positive interest rate development on the capital markets and the confident market expectations to its customers. Since February 2021, ING has been demanding custody fees for new customers from EUR 100,000. In June, it was extended to include existing customers and the allowance was reduced to EUR 50,000 per account.
ING’s move could be the start of a trend reversal. Because the expectation is increasing that other financial institutions will soon relax the conditions for custody fees. Oliver Maier, Managing Director of the comparison portal Verivox, sees the announcement by ING as a “clear signal” for the entire industry. “When big houses like ING improve their conditions, the pressure on the competitors to become active automatically increases.”
According to Verivox, several financial institutions have recently increased the allowances for calculating negative interest. In the past two weeks there have been four banks: PSD Bank Kiel, Oldenburgische Landesbank, Sparkasse Aschaffenburg-Alzenau and Volksbank Stendal. At the Oldenburgische Landesbank, the exemption limit recently rose from EUR 100,000 to EUR 500,000, with the negative interest, according to Verivox, being calculated on the entire balance if the exemption limit is exceeded.
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Experts expect that the European Central Bank (ECB) will initiate an interest rate turnaround in July. The key interest rate is currently zero percent. The deposit rate at which commercial banks park money at the ECB is even minus 0.5 percent. Several top central bankers have already indicated that the ECB could turn around in monetary policy in the summer. As a result, market interest rates have already risen.
Many banks are still hesitating
However, ING’s competitors initially did not want to follow immediately, as a survey by the Handelsblatt among several financial institutions revealed. Commerzbank explained: “We are looking closely at developments and will react if the rising interest rates prove to be sustainable.”
Other banks also kept a low profile. The online bank DKB explained that there are currently “no plans to adjust the exemption limits”. It sounds similar at Berliner Volksbank, the largest Volksbank in Germany: “Since the ECB has not yet made a decision, we cannot give an answer at the moment.”
The banks usually justify custody fees of usually 0.5 percent with the monetary policy of the ECB. However, some financial institutions have linked their negative interest rates for private customers directly to the central bank’s negative interest rate on deposits, some of which have even been contractually stipulated. The ECB introduced penalty interest rates in 2014, and they have been minus 0.5 percent since autumn 2019.
Deutsche Bank announced that the amount of the custody fee is based on the ECB’s deposit rate, the so-called deposit facility. “If the ECB changes the deposit facility rate, we will adjust the fee in the retail customer business in the short term and in the event of a deposit facility of zero or more we will completely refrain from charging a custody fee,” said a spokeswoman for Germany’s largest retail bank.
Hamburger Sparkasse and Berliner Sparkasse also use the ECB deposit rate as a basis for negative interest rates for their customers. The Frankfurter Volksbank points out that this is stipulated accordingly: “The contractual provisions provide that the amount of the custody fee is directly linked to the interest rate of the ECB and is adjusted accordingly if the ECB changes.”
455 money houses with negative interest rates
The number of credit institutions that charge custody fees is still large. With a view to the price notices, Verivox is currently registering 455 financial institutions with negative interest rates for private customers. This corresponds to a good third of the banks surveyed. At the end of March there were 450 banks and savings banks, at the beginning of the year 423. In fact, the number is likely to be even higher because not all banking conditions are freely accessible on the Internet.
23 financial institutions also charge a fee for the call money account, which is usually free of charge, sometimes in addition to negative interest. The negative interest usually takes effect above an allowance of 100,000 or 50,000 euros, sometimes even from 10,000 euros.
Both new and existing customers are affected. For new customers, banks introduce negative interest through the regulations in the price list. With existing customers, they try to get explicit consent for charging custody fees.
However, consumer advocates believe that custody fees on checking and call money accounts are generally not allowed. The Federation of German Consumer Organizations (VZBV) is therefore suing several banks and has in some cases already been right in the district courts. The cases now go to the next instance.
ING Germany boss Jue had already announced in mid-February in a conversation with the Handelsblatt that he would no longer charge custody fees for private customers as soon as the ECB said goodbye to its negative interest rate policy. Now ING Germany even anticipates this decision.
At ING Germany, which belongs to the major Dutch bank ING, the reduction in the exemption amount to EUR 50,000 has apparently had an effect beforehand. Customer deposits fell significantly. In the first three months of 2022, they fell to 129 billion euros – a decrease of almost 13 percent compared to the same quarter of the previous year.
ING Germany: “The vast majority” has already approved the terms and conditions
ING Germany did not want to say how many customers recently had to pay negative interest and how many will be affected in the future. “Only a small proportion of our customers pay a custody fee, so the income from custody fees is relatively low,” said an ING spokesman.
The bank assumes that the higher allowance will also help in other areas. According to its own statements, it expects that the increase in the allowances will also convince those customers who have not yet agreed to the general terms and conditions (GTC) including the custody fee. She is betting that “the bank will terminate fewer customers than last planned”. Overall, the money house runs around seven million current accounts and other accounts.
So far, however, the vast majority of customers have already agreed to the terms and conditions, explained ING. Depending on the customer group, the bank is close to an approval rate of 100 percent, the spokesman continued.
The background to this is a judgment by the Federal Court of Justice from April 2021. According to this, financial institutions must obtain the express consent of their customers if there are changes to the general terms and conditions, for example price increases (Az. XI ZR 26/20). The VZBV had sued the Postbank, which had raised fees several times.
Up until the verdict, banks and savings banks had usually increased the fees above the existing clauses. They assumed that customers would tacitly consent if they did not object to a change within two months. Numerous credit institutions across the industry are now obtaining approval for the current General Terms and Conditions afterwards.
The first money houses have already terminated customers who did not agree to the terms and conditions or negative interest rates. ING will now terminate a mid-double-digit number of customers, the spokesman said.
More: ING Germany offers private customers the prospect of the end of custody fees