The small and relatively unknown Skatbank made headlines when it announced that it would introduce penalty interest rates for balances of more than 500,000 euros in call money accounts. In the meantime, Skatbank has increased the limit to 3 million euros. It will not remain the only bank! Other banks are also thinking about negative interest rates, the best known among them is Commerzbank.
So far, only companies that want to or have to invest larger sums available on a daily basis have been affected. Alternative investments are available for capital to be invested in the longer term, which also suffer from the ECB’s low interest rate policy, but for which at least no negative interest rates are charged. Private small savers will probably not be affected in the future either, because they could simply store their savings as cash.
How did negative interest rates come about?
The trigger for this development was the European Central Bank (ECB), which introduced such a penalty fee for banks that park their capital at the ECB. In doing so, the central bank wanted to encourage banks to grant more loans instead of hoarding the money. Negative interest rates are not a new phenomenon in finance, although many are probably encountering them for the first time. In the recent past, Denmark’s central bank has already experimented with this. The experiment failed! Instead of extending more loans, the banks simply passed on the costs to their customers. It seems as if the ECB’s attempt is taking a similar course. By the way, the idea of charging savers with fees instead of rewarding them with interest is already very old. In the early days of paper money, people were already thinking about banknotes, the validity of which had to be extended annually with a fee-based token. The basic idea has always been the same: money should function primarily as a means of payment and not as a store of wealth that is withdrawn from the money cycle in the long term.
What can companies do?
The easiest way to avoid the penalty interest is to change banks. Of course, this is associated with a certain amount of administrative work. But if enough companies decide to do so, the market will probably solve the problem all by itself. In a sense, this situation is reminiscent of the electricity market, where the former monopolists impose higher prices because they benefit from the barriers to switching. It is also possible to maintain several business accounts with different institutions and thus remain below the threshold for the negative interest rate. Otherwise, it is advisable to reduce the funds available daily to a minimum. Alternative investments with a relatively short investment period or flexible terms are available in large numbers. Eligible are fixed-term deposits, covered bonds, bonds, bonds, floaters, etc.
Companies are losing liquidity
Companies affected by the penalty interest lose liquidity. All alternative strategies cause at least internal administrative costs, depending on the alternative investment chosen, fees or other external costs may also apply. The effect is small in view of the very low negative interest rates of about 0.1 percent, especially since only the daily available part of the capital is affected. Nevertheless, this effect shows once again that controlling interventions in the financial sector do not always have the desired effect. After all, the ECB has resorted to the instrument of negative interest rates to counteract a (supposed or actual) liquidity bottleneck for companies. It is likely to be difficult for the ECB to prove that even one additional loan was granted as a result. The (admittedly very small) loss of liquidity of affected companies, on the other hand, is very well demonstrable!
How do you deal with the issue of penalty interest? We look forward to your comments!
Image source: Fotolia.com, Photographer: alphaspirit
