Saving in a current account is making a comeback: after years without any significant interest, banks are now advertising three or even four percent interest rates again. “We are currently seeing huge competition between banks for customers’ money,” says Christian Klein from the University of Kassel in the new 50k video on YouTube. The competition is getting bigger - and that's exactly what customers could now benefit from.
One of the most prominent examples currently: JP Morgan Chase. Since the end of May, German savers have been able to invest money in a current account at the American bank with four percent interest for up to four months. The bank is internationally known as the largest private customer bank in the USA, but is new in this country. It is currently advertising under the name Chase and wants to quickly make a name for itself among German savers through particularly high daily interest rates - with the aim of selling additional products later.
This increases the competitive pressure on domestic banks, says Klein: "JP Morgan Chase's entry into the market is of course making the other banks nervous. We will see in the next few months and years that the competitive pressure between the banks is increasing, which couldn't be the worst thing for customers."
Long period of zero interest rates
A current account is considered the ideal parking space for the emergency fund: the money is available at short notice, the deposit is legally protected up to 100,000 euros per person, and in contrast to the checking account, there is now interest again. However, this was theory for a long time: After the financial crisis in 2008 and during the corona pandemic, the European Central Bank (ECB) lowered the key interest rate to below zero in some cases in order to support the economy with cheap money. Banks were able to refinance very cheaply and had no pressure to pay interest to their customers.
That changed with the wave of inflation starting in 2021. Energy prices rose, supply chains collapsed, and the war against Ukraine exacerbated the situation. Inflation jumped to over ten percent at times. To counteract this, the ECB has increased the key interest rate significantly since 2022.
This means that saving is now worthwhile again: "A bank also invests money, namely with the ECB. The key interest rate is the interest that the ECB pays the banks," explains expert Klein. Some banks even pass this interest on to customers: "If the key interest rate rises, that means for us savers that we get more interest on our deposits." The result: Banks have to actively secure customers' deposits again so that they do not migrate to banks that offer better offers and higher interest rates. Many customers today compare interest rates and change banks more often in order to get the best offer.
Promotional interest and cash rewards
The overnight money segment is particularly competitive with so-called lure offers. Some institutions offer relatively high interest rates, but only for a limited period of time. Promotional interest rates between three and four percent are not uncommon, but are often only valid for three to six months. In addition, some institutions entice customers with one-off cash bonuses, cashback models or combinations with a current account.
However, the enticement offers are rarely entirely positive: for example, it makes a big difference which standard interest rate is charged on the balance after the enticement offer has expired. It's worth calculating this individually. What appears to be a very attractive current account can turn into an account with hardly any interest within just a few months. High promotional interest rates say little about the long-term conditions.
The daily money comparison from Finanztip for new customers shows which banks offer good conditions:
Always switch to the best provider?
Anyone who is willing to invest time can benefit from attractive offers. The term “cash money hopping” has become established in the market: after a few months, customers move on to the next bank with the best promotional interest rate. In this way, you ensure the highest return in the short term. But expert Klein emphasizes: "Experience shows that only a few people manage to do that because we are simply lazy. And that's what the banks are betting on."
Banks are even counting on the fact that many customers will not take any action after the campaign has expired. In technical jargon, financial institutions speak of “lazy deposits” or “lazy funds.” "Indolent funds are amounts of money that you have invested somewhere and then more or less forgotten about, for example in an old savings account," explains Klein: "This is fatal for private individuals, because if interest rates are lower than inflation, this money becomes worth less day by day."
Comparing offers is worth it
So-called car banks, such as Volkswagenbank or Renault Bank Direkt, use a different strategy. Their main task is to finance vehicles through loans and leasing. “It is particularly interesting for car banks to receive deposits from customers because they can pass this money on one-to-one for car financing,” says Klein.
Because these banks rely on stable deposits, they often offer less noticeable promotional interest rates, but competitive standard interest rates over a longer period of time. For investors who don't want to switch every few months, this can be an interesting alternative to aggressive lure offers.
In addition to traditional branch banks and direct banks, new providers are playing an increasingly important role in the overnight money market. These include neobrokers such as Trade Republic, which base their interest rates directly on the ECB's key interest rate. If the key interest rate rises, the overnight interest rates often rise very quickly. This is transparent for savers: Anyone who knows the ECB interest rate knows roughly what the daily money will bring.
More interest than the competition?
And foreign banks are also becoming more and more interesting. They are also becoming more attractive because statutory deposit protection applies within the European Union: balances of up to 100,000 euros per customer and bank are protected if an institution becomes insolvent. This limit is sufficient for the vast majority of private investors.
Deposit insurance is organized nationally. Many comparison portals therefore primarily recommend banks from countries with financial systems that are considered stable - such as Germany, France or the Netherlands. Christian Klein sees it a little more relaxed: "If we look specifically at Germany, larger banks with sometimes foreign-sounding names still have a German license. The German Deposit Insurance Act also applies here." This means that up to 100,000 euros is also safe with these banks.
It is still worth taking an additional look at institutions with particularly high interest rates that are significantly above market levels. In such cases there may be a high need for financing. This is not automatically problematic, but it should be an opportunity to examine the business model and security system more closely.
