Investment

Super low interest rates – but not with the overdraft facility

Summary

The low interest rate pleases many – but not all. The historic low in interest rates is a blessing for property buyers. There has never been more building loan for so little money. Millions of bank customers who are financially […]

Super low interest rates - but not with the overdraft facility.  Investors are concerned about the low interest rate (source: imago images)

The low interest rate pleases many – but not all. The historic low in interest rates is a blessing for property buyers. There has never been more building loan for so little money. Millions of bank customers who are financially tight and overdraw their checking accounts, on the other hand, have absolutely nothing from the current dream interest rates. Banks and savings banks do not pass the interest rate advantage on to them at all.

The overdraft will be expensive

Consistently, consumers in the Miesen are asked to pay with an average of eleven percent. For tolerated overdrafts, many credit institutions often unabashedly add another four percent. Great business. “For months now, banks have been benefiting more than ever before,” criticized Frank-Christian Pauli from the Federal Association of Consumer Organizations (vzbv) in Berlin. You can only save by switching to a cheaper provider.

The fact that the record low in interest rates is really paying off for real estate buyers is due to the fact that mortgage rates are closely related to the returns on German Pfandbriefe and government bonds. Because of the fierce competition among mortgage lenders, no institute can afford not to pass on the fall in interest rates to the building owners.

Cheap money from the ECB

The situation is completely different with the interest on credit balances, overdraft facilities or installment loans. The banks themselves have been able to borrow money at a bargain price from the European Central Bank for many months, but happily lend it to their customers in multiples and hardly reward their savings.

Financial institutions have no pressure to pass on interest rate cuts to their customers, as Max Herbst from the independent finance portal FMH in Frankfurt emphasizes. “Each credit institution decides that for itself,” says the Association of German Banks. A good six percent interest is still charged for consumer loans, and absolute meager interest rates of one to two percent are charged for savings deposits.

Almost 13 percent overdraft facility at Deutsche Bank

And when customers slide into the red, things get right. Deutsche Bank, for example, currently collects 12.75 percent for the overdraft facility, Commerzbank 13.24 percent, and Hypovereinsbank 11.80 percent. If the customer exceeds his approved limit, some banks and savings banks even charge up to 18 percent. Reaching deep into the pockets of customers is “dishonest”, says Pauli. In neighboring Austria, consumers only pay half of the local overdraft facility costs.

Improvement is not in sight. On the contrary: the legislature wanted the amount of the overdraft interest with the new consumer credit directive to be linked to a reference interest rate since the beginning of the year. Most banks then also opted for the three-month Euribor or the ECB key interest rate. If this increases, the overdraft interest may be increased and vice versa. But the peg at a time when the key interest rate was one percent is becoming a boomerang, explains Herbst. In the future, interest rates are only likely to go up, the overdraft facility will only become more expensive.

It’s worth changing

“Don’t go along with it or get annoyed, but act and save,” recommends the financial expert Herbst. Nobody has to pay double-digit overdraft facility interest rates. The market gives much more favorable conditions. Quite a number of banks, especially online institutes, charge between 5.5 and eight percent overdraft interest.

A calculation example: if you overdraw your account by 5000 euros and have twelve percent interest on your leg, it costs a proud 50 euros a month. After switching to a bank with only 5.5 percent overdraft interest, you can save more than half of the costs with 27 euros.

Switching to a cheaper financial institution is not a problem, stresses Herbst. According to an FMH survey, 90 percent of banks are immediately ready to take over the previous overdraft facility limit from a new customer.

The expert advises anyone who knows that they will remain permanently in disposition, should basically organize their finances. Rescheduling to a low-interest installment loan is not a solution. “Arithmetic examples show that sooner or later people end up in the overdraft facility.”