They are called penalty interest, or negative interest, or simply the negative bank deposit rate. For years it has been the most important argument of banks and savings banks in Germany to close branches, to dismiss employees, to merge entire institutions, and to raise various fees for customers, or to think up completely new fees. For years now the ECB’s key interest rate has been at 0.0%.
If a bank in the euro area has excess liquidity (more deposits than loans granted), it pays a penalty of 0.40% for depositing this surplus with the ECB. Years ago, the ECB came up with this measure in order to animate the banks. They should feel compelled to give out as much credit to consumers and companies as possible (stimulating the economy so that prices rise). In this way the banks would avoid paying the penalty interest.
The only problem, especially in Germany, is that citizens prefer to park their income in a zero interest rate environment (effective losses thanks to inflation) on a savings account or in time deposits rather than buying shares (here are the latest Bundesbank figures on increases in financial assets).
But to the point. According to the RP, German banks paid 2.4 billion euros in penalty interest to the ECB (Bundesbank) last year for the surplus balances deposited there (info from the Federal Ministry of Finance’s reply to the FDP parliamentary group). And when we see how the money in bank accounts is growing, we can assume (we think) that the volume of penalty interest paid will increase.
Just a few days ago the umbrella association of Volksbanks pointed out that if the ECB’s current interest rate policy continues, the ECB’s penalty interest will probably be passed on to all bank customers. So far only business customers and selected private customers with very large credit balances have been affected. The probability continues to increase that small savers will soon also pay interest on their savings accounts instead of receiving them. With Mrs Lagarde as the new head of the ECB, it is more than likely that the current monetary policy will continue for many years.