By raising interest rates on loans and mortgages, but continuing to pay little return on deposits, banks are earning more than they have in 16 years. Consumer advocates criticize this.
It was only a few months ago that Germans received no interest on their call money, but still paid little for mortgages and car financing. In the meantime, mortgage interest rates have risen to levels that are unaffordable for many and car financing costs around four percent interest. However, most money market accounts continue to deliver meager 0.0 percent.
Private customers and small investors pay higher interest rates on borrowed money than a year ago, but get significantly lower returns on money that banks lend. Anyone who assumes that the money houses make a princely fortune from this is right: in their recently presented balance sheets, many German banks report record profits because they earn a lot of money with interest, but pay little for it.
Commerzbank achieved net interest income of EUR 1.6 billion in the third quarter of 2022, around 45 percent more than in the previous year. Although its Polish subsidiary mBank racked up hundreds of millions in losses, Commerzbank made a profit from it, from which it intends to pay shareholders a dividend.
The other banks also earned good interest rates. Deutsche Bank’s quarterly profit rose in the third quarter as high as last in the third quarter of 2006 before the financial crisis. In its quarterly report, Deutsche Bank also names high interest rates for private and commercial customers as one of the most important reasons for the jump in profits.
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This data includes all of the banks’ interest rate products: call money, fixed-term deposits and personal loans as well as corporate financing.
The higher interest rates are driving billions in profits for the banks, including corresponding bonuses for managers and dividends for shareholders. Even analysts were recently surprised by the extent to which bank profits jumped despite the weakening economy.
The consumer advice center writes on its website that it is “particularly annoying” that banks immediately pass on rising interest rates on loans to customers, but slowly or not at all increased interest on deposits. However, customers do not have a legal right to rising overnight interest rates: banks are free to decide what interest rates they offer.
Competition will also make deposits more profitable again. But no one knows for sure how quickly. The consumer advice center says it could take “a few months” for the interest rate hike to reach savers.
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It is “your right to vent your dissatisfaction with such a business policy by complaining to the management and its control bodies,” the consumer advice center advises customers. In the case of savings deposits, they could argue with the interest rate for three-month money (Euribor), which is currently around 1.5 percentage points. Banks should at least partially pass this on to savers.
Until the banks also increase deposit rates, consumers can only adapt to the current situation. An example: As the financial portal biallo.de warns, in the past few months 264 of 1167 banks have increased the interest rates, which are already high by an average of ten percent. For overdrafts beyond the overdraft facility, the banks charge a national average of 12.39 percent. This figure has also increased over the past year.
Due to the high inflation, however, more people are currently using their overdraft facility. In a survey commissioned by the credit agency Schufa at the beginning of October, half of the consumers stated that they had already used reserves in the past six months. A quarter said they had overdrawn during this period and delayed paying bills by the due date or beyond.
Schufa board member Ole Schröder spoke of a worrying development. “In our database, we see that in the months of August to October, the number of people who have payment defaults for the first time increased by 20 percent compared to the same period last year.”
The consumer advice center in Bavaria condemns the rate hikes by the banks. “In this respect, we advise consumers to only go into the overdraft facility and only to the extent that they are sure they can balance it out again in a few months,” spokesman Sascha Straub told the Munich Merkur. He also recommends paying attention to the interest rates and not just the account fees when looking for a bank.
However, until the banks raise interest rates on deposits, small savers and simple account users will continue to finance billions in profits. There is hardly a way around it. Since the ECB is planning the next interest rate hike for December, the interest rate differentials could still widen. In the USA, where the central bank Fed had raised interest rates well before the ECB, many financial institutions have since announced even larger profit jumps than German banks recently.
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