Fierce competition and the ECB's interest rate hike are driving up interest rates on current account accounts. What experts now advise and what the minimum interest rate must be.
Munich. When the online bank Chase started offering four percent interest on overnight money in May, it was by far the highest interest rate on the market. The offer from the subsidiary of the largest Wall Street bank is now one of a whole field of high-interest offers. There are currently six banks and brokers that pay interest of four percent or higher on their daily savings accounts. Eight other financial institutions promise 3.5 percent or more.
Savers are currently benefiting from two developments, says Ania Scholz Orfanidis, head of interest rate comparisons at FMH-Finanzberatung: higher interest rates due to inflation and fierce competition among banks. “Young banks and brokers are attracting new customers with high overnight interest rates; in this situation, established financial institutions have no choice but to follow suit,” explains Scholz Orfanidis. According to Rudolf Krux from the consumer portal biallo.de, this competition has even affected banking groups that rarely make a name for themselves with high interest rates.
Answers to the most important questions that savers should now ask themselves and why, from the perspective of experts, offers of less than three percent interest are no longer acceptable.
Are overnight interest rates now at their peak?
While in the spring banks whose overnight interest rates had a three before the decimal point were at the top of the relevant interest rate overviews, such offers are currently only found under “further options” and they are also being passed down even further. Oliver Maier is sure of that. The head of interest rate comparisons at the Verivox portal sees no signs that the competition for overnight money among banks and brokers will soon subside.
Krux is a little more cautious: "If there are no more major surprises in terms of inflation or competition, we should at least be close to the peak. But the trend is still upwards," says the overnight money expert.
In his opinion, a further interest rate hike by the European Central Bank (ECB) in the fall, which economists have not ruled out, will not necessarily lead to higher overnight interest rates. “At the end of the most recent interest rate peak in September 2023, the usual overnight interest rates no longer rose following an interest rate move by the ECB, but instead leveled off at the new level,” says Krux.
While competition among banks is likely to remain strong, the central bank's policy is based on inflation. If it remains at the current level of 3.3 percent in Germany and the euro zone, further interest rate steps are conceivable. If inflation falls back towards two percent, Rudolf Krux believes that interest rate cuts are conceivable again next year.
What should daily money savers pay attention to?
From Scholz-Orfanidis's point of view, daily money savers should orientate themselves on the inflation rate. “Savers can only achieve a real return with offers that offer more than 3.3 percent; anything else would be damage limitation,” she says. But the expert also knows that interest rate shopping, i.e. constantly switching from one bank to the next in order to always get high interest rates, is not for everyone. She therefore advises paying attention to the interest rate guarantees.
The higher interest rates have risen, the longer the periods in which banks guarantee their overnight interest rates have become. According to the FMH financial consultancy, four months is standard for providers who offer four percent or more.
According to Krux, even longer interest rate guarantees have to be paid for with significant losses in interest. The Bank of Scotland's promotional interest rate is valid for one year, but it is only three percent.
According to Oliver Maier, daily money offers are classic anchor products. This means that banks and brokers use them to retain new customers. It is not uncommon for a deposit or checking account to be opened in order to receive the interest. Therefore, according to the Verivox expert, some offers are primarily worthwhile for people who are also looking for a new checking account or securities account.
From Scholz-Orfanidis' point of view, such "dinghies" should not represent an obstacle for anyone who only wants the interest, as long as they do not incur any costs. “The only important thing is to completely close your bank account when the promotional interest rate has expired,” she says.
Banks are no longer just wooing new customers with high interest rates. There are now also high interest rates for loyal customers. While Trade Republic has linked its existing customer interest rate to the deposit rate of the European Central Bank and is currently offering 2.5 percent, the second major domestic neobank Scalable Capital pays 2.6 percent. The Hamburg-based Ascory Bank is currently offering even more at 2.75 percent.
“The majority of existing customers have largely ignored the high interest rates on overnight money,” says Maier. According to his figures, the average interest rate for offers available nationwide is currently 1.42 percent. In June, when the ECB raised interest rates for the first time, average interest rates were still 1.33 percent. “The latest key interest rate increase should consolidate this slight upward trend, but no major upward swings in average interest rates are to be expected,” says Maier.
When does it become worthwhile to secure the high interest rates with a fixed-term deposit account?
A look at the development of fixed deposit interest rates shows that there was already an increase here at the beginning of the fighting in the Middle East, which has continued since then, but has slowed down significantly. This is also reflected in the interest rates, which are still significantly lower than the current daily money offers for fixed-term deposits with a term of six months. The German branch of the Turkish Isbank offers 3.2 percent, almost one percentage point less than 1822direkt's daily money, which is guaranteed for six months.
With a fixed interest rate of one year, the tide turns in favor of fixed-term deposits: the interest broker Raisin, formerly known as Weltsparen, offers 3.55 percent.
Although fixed-term deposits do not have a fixed interest rate of four percent for ten years, Krux still considers the long terms to be interesting in order to protect yourself against falling interest rates in the long term. At five years there is a peak of over 3.50 percent.
In order to remain flexible, he and the other two experts also advise taking some time with fixed-term deposits. And even then, not everything should be put on one card. “It’s worth remaining flexible with different terms and daily allowances,” says Krux. “We have already had several inflation shocks in recent years, and further ones cannot be ruled out.”
