From Free to Fee

  • Why it matters

    Why it matters

    Even small retail bank account holders are starting to feel the pain of the ECB’s prolonged zero interest rate policy, which is forcing saving banks to charge fees or go bust.

  • Facts


    • Germany’s highly competitive retail banking market has kept fees down for consumers compared to countries like the United States and Britain.
    • Eight of Germany’s 10 largest savings banks have introduced account fees this year to compensate for lost revenue from low interest rates, since German financial institutions earn three quarters of their revenue from interest on loans and other investments.
    • Industry experts estimate that between 25 and 40 percent of Germany’s bank branches could close in the next five years.
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For most German savings bank customers, free accounts will soon become a thing of the past. Source: DPA / Angelika Warmuth.

It’s always been something of a luxury here in Germany. Many households in this land of savers have been able to open an account at a local commmunity bank without having to pay a fee – something banks in many other industrial countries have long since abandoned.

Now that’s changing in Germany, too. The era of free accounts at Germany’s community savings banks or “Sparkassen,” a network of some 400 financial firms that form the backbone of the country’s banking industry, is coming to an end. Eight of the country’s 10 largest savings banks have raised fees on retail accounts this year.

It’s a luxury that Germany and its banks can no longer afford, and yet another reason for households to take their ire out on the European Central Bank, which is extremely unpopular in Europe’s largest economy.

That’s because Germany’s community-owned savings banks have little choice in the matter. The ECB’s decision to keep benchmark rates at zero has deprived them of a key revenue stream.

German financial institutions derive about three-fourths of their income from interest on loans and other investments. The ratio is even higher among the Sparkassen and the hundreds of other community-owned financial institutions that dot the country’s decentralized banking landscape.

It’s a fact that has led many here to point the finger at the Frankfurt-based central bank. Unlike countries in southern Europe, Germany’s economy has been chugging along quite nicely over the past few years. The trouble has instead been in its financial system. Bankers here therefore have long argued the ECB needs to start raising rates if the industry is to survive the long haul.

In the meantime, banks are also recognizing that the way they operate has to change. Unable to earn revenue from interest, the Sparkassen are passing the cost on to their customers.

“We are at the beginning of a wave of fee increases,” Holger Sachse, a partner at the Boston Consulting Group, told Handelsblatt. Mr. Sachse views the move as an “absolute must” for the banks.

“In the United States, you pay three or four times more for daily banking products compared to here.”

John Cryan, CEO, Deutsche Bank

The MBS savings bank in Brandenburg, for example, is the latest institute to join the trend. Starting in January, MBS customers will pay €8.50 ($9) for a so-called “inclusive account,” a 30-percent price hike.

Germany’s Postbank, previously owned by the postal service and now a Deutsche Bank subsidiary, pioneered the free retail account in 1998. But even for Postbank, the golden days came to an end this year. In November, the retail bank started charging €3.90 a month for an account with a balance below €3,000.

And it’s not just the brick-and-mortar financial institutions that are increasing their fees. Even the smartphone-based digital bank N26 has started charging customers. N26 account holders are now limited to five free ATM withdrawals a month. Additional withdrawals cost €2 per transaction.

While these kinds of fees are common in many countries, Germans generally aren’t accustomed to paying for retail banking services. Banks in Germany earn €680 per account holder annually, compared to €910 in France, €1,000 in the Netherlands and €1,370 in Britain.

Banking in the United States is particularly expensive compared to Germany. The reason is there’s more competition in the financial industry here: Germany has more banks per head than any other developed country – which has long resulted in lower fees.

“In the United States, you pay three or four times more for daily banking products compared to here,” Deutsche Bank Chief Executive John Cryan said at a recent Handelsblatt event. “Just imagine if we  charged several dollars just for a simple transfer to another bank,” Mr. Cryan added.

In Germany, talk of such practices would be met with disbelief – up until now.

“Though many banks are still in a decent financial situation, a collapse in earnings is expected in the next few years.”

Dirk Schiereck, Banking professor, Technical University of Darmstadt

Germans, however, will have to get used to the new reality of having to pay for their bank accounts. With no end in sight to the ECB’s zero-interest policy, even banks that are in a strong financial position are likely to introduce fees soon.

“Though many banks are still in a decent financial situation, a collapse in earnings is expected in the next few years,” Professor Dirk Schiereck of the Technical University of Darmstadt told Handelsblatt.

Some banks are trying to limit the fallout for customers by offering alternatives. Sparda Bank Münster, for example, will continue to offer a free online account. And Sparda Bank Hamburg is trying to avoid imposing account fees altogether by charging customers a fee for their debit cards instead.

Other banks, like N26, are charging consumers for individual transactions and services instead of flat monthly or annual fees for an account. Some of the Sparkassen are even assessing small fees of up to 40 cents to withdraw money from ATMs that belong to the bank.

“We’re seeing a trend away from flat fees for an account to fees for individual transactions,” Frank-Christian Pauli of the Federation of German Consumer Organizations told Handelsblatt. “This makes it difficult for consumers to get an overview of the different offers.”

Nevertheless, Mr. Pauli said the best way for consumers to fight back is to send a message by switching banks. Under German law, banks are required to help customers switch to a new financial institution if they ask for it.

Few consumers, however, have taken advantage of this law so far. The MBS savings bank in Brandenburg, for example, has 500,000 customers. So far, just 500 have filed complaints over the higher fees.


Elisabeth Atzler is a banking correspondent for Handelsblatt. Frank Drost is a Handelsblatt Editor in Berlin, covering financial supervision and banks. To contact the authors:,

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