European Central Bank before interest rate hike: Banks must end interest rate rip-offs

A few weeks ago, the direct bank ING announced with great fanfare that it would raise the interest rate for overnight money accounts to three percent. Up to a deposit amount of EUR 50,000. For newly deposited funds. Limited to six months. The only thing missing from the long list of restrictions was that savers were only entitled to the interest if they first lugged three crates of water through the Sahara – on one leg and backwards, of course.

Not only ING, but all banks are not passing on the benefits of the turnaround in interest rates to savers at all or only rudimentarily – and if so, then only in the form of temporary lure offers. With an average of 0.93 percent, there is again significantly more interest for overnight money than a good year and a half ago.

But consumers still get nothing from almost a third of all banks. And this despite the fact that the banks are once again earning a lot from deposits.

The European Central Bank had recently increased the deposit rate to 2.5 percent. That's how much banks get when they park money overnight at the central bank - a multiple of what they pay their customers. And this gap is likely to widen even further when the monetary authorities announce what is now more than the seventh straight rate hike on Thursday.

But the interest rate rip-off by the banks is likely to take revenge. In the competition for customer deposits, more and more providers are establishing themselves who previously had nothing to do with the interest business - and who are now offering significantly higher interest rates to savers. The smartphone manufacturer Apple recently launched a savings account with 4.15 percent interest for US citizens.

In Germany, too, there are interest rate offers that are more attractive than those of classic banks: the neobrokers Trade Republic and Scalable launched an interest rate offensive at the beginning of the year. There is also a cap on the deposit amount, but this is not about temporary promotional interest. If the fintechs don't suddenly back down, savers will get solid interest rates here on a permanent basis. And it is quite possible that the providers will follow suit after further interest rate increases by the ECB.

Also read: Secure interest rates plus flexibility – is it worth accumulating savings again?

If the banks ignore the increasing competition in the interest business, they threaten not only to lose the trust of customers - but also their deposits. A billion dollars was deposited at Apple within the first four days after the start of the savings account. According to insiders, there were also inflows of funds in the billions from the neo-brokers.

Conversely, the payments to the newcomers mean outflows from the banks. They can be dangerous, as the bank turmoil in the USA has clearly shown. And with banks making money off deposits again, it should be in their best interest to keep customers -- and raise interest rates. After all, it is not a strategy to speculate that customers are tired of switching.

Also read: Interest hopping – this is how savers get the most out of overnight money

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