Negative Rates

Not-So-Free Checking

  • Why it matters

    Why it matters

    The ECB’s ultra-easy monetary policy, which includes a negative deposit rate, has squeezed bank earnings and they’re trying to pass on some of the cost to their customers by charging them for holding deposits.

  • Facts


    • 11 German banks have introduced negative interest rates or fees on customer deposits in response to the ECB’s 0.4 negative deposit rate, according to a list compiled by comparison site Verivox.
    • The consumer rights organization for the state of Baden-Württemberg is considering challenging the practice in court.
    • One legal expert told Handelsblatt it was inadmissible for banks to start charging existing customers for holding their deposits unless they gave their approval.
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Customers may soon want to park their cash under the mattress, or in vaults like this one of Germany's Bundesbank. Source: DPA

If you deposit your cash in a bank, you are effectively lending it money, so it doesn’t really seem fair for the bank to charge you for it. It’s why banks in most countries offer free checking accounts – to the chagrin of many bankers who complain that the practice masks everything a bank has to do to keep those accounts operating.

Some German banks – frustrated even more by interest rates that are among the lowest in Europe – are trying to change that. So far, 11 banks have introduced fees for retail customers, in most cases only for holding sums above a certain threshold, according to the Verivox comparison website. Whether they are allowed to by law is another matter.

These negative rates for normal savers break a taboo in Germany and could soon be challenged in court. The consumer advice center for the state of Baden-Württemberg has filed a complaint against a local bank, Volksbank Reutlingen, saying it was inadmissible for customers to be charged without their approval. It has threatened to take legal action if necessary to clarify the situation.

If the Reutlingen case comes to trial, it could set a precedent for the whole country.

Intriguingly, the Verivox list mainly consists of cooperative banks, known here as “Volksbanken” or “Raiffeisenbanken,” where customers have a say in the running of the institution (see graphic below). They include VR Bank Kitzingen in Mainfranken, southern Germany, which now charges €3 ($3.40) per month on deposits up to €25,000 and €6 for deposits above €50,000. Those parking more than €1 million with the bank get charged €150.

“This isn’t about receiving increased income through the fee,” said management board member Roland Köppel. “We’re combining the introduction of the fee with a recommendation to members to invest their money elsewhere, for example in a savings account.”

While such small fees on checking accounts are common in the United States, negative interest rates remain a rarity for private customers in Germany, and banks in other European countries so far haven’t followed suit. The European exception is France, where fees on checking accounts are common. Bank fees there have been rising again last year after two years of declines, according to the panorabanques comparison site.

Things could soon change. Consultants PwC has said it is “unsustainable” to offer free bank accounts and predicted most will vanish in a decade. And while fees on private savers remain rare, it’s become common practice in the past few years in Germany and elsewhere to charge companies, professional investors and local authorities that have deposited large sums of money.

The banks are passing on part of the negative interest rate the European Central Bank is charging them. In order to encourage lending and deter banks from parking their cash in central bank accounts, the ECB charges banks a negative rate of 0.4 percent on bank’s overnight deposits with it. That’s expensive — the 0.4 percent rate cost German banks a total of €1.1 billion last year, according to Barkow Consulting.

In the case of Volksbank Reutlingen, it responded to the criticism by scrapping the charge, but it has refused to sign a cease and desist declaration. As a result, the Baden-Württemberg consumer rights center is considering legal action. “We want to clarify the legal position and thereby send a signal to other banks,” said Niels Nauhauser, head of the watchdog’s pensions, banks and loans department.

If the Reutlingen case comes to trial, it could set a precedent for the whole country.

06 p26 Negative Interest Rates for Private Customers-01

Tobias Tröger, law professor at Frankfurt’s Goethe University, said there was a strong case against the banks. While banks were entitled to charge negative interest rates when it came to new contracts, be they for private individuals or commercial customers, they have no right to change the terms on existing customers.

“When the customer has a checking or deposit account with a bank, he is giving the bank a loan. The bank can reduce the interest rates it pays for it to zero but not below that. It cannot demand a fee in the form of negative interest rates,” Mr. Tröger told Handelsblatt.

He said banks also had no right to charge a monthly “deposit fee” because that amounted to a unilateral alteration in the terms of their agreement with the customer.

“The banks can’t simply turn a classic loan agreement into a custodial agreement by charging for the safety of the deposits. The terms and conditions can as a rule only be changed if the customer agrees to it,” he added.

That applied regardless of the size of the deposit, and it also applied to corporate customers, he said. The difference is that banks can more easily reach individual agreements by talking to corporate customer and negotiating new terms.

Whatever happens with the court case, one thing is clear then. For new customers opening an account, it could be a brave new banking world.


Elizabeth Atzler is a banking correspondent for Handelsblatt in Frankfurt. Felix Holtermann is an editor on Handelsblatt’s finance desk in Düsseldorf. Christopher Cermak of Handelsblatt Global contributed to this story. To contact the authors: and  

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