Germany's risk-averse savers grapple with negative interest rates


German policymakers are locked in debate over how to react to negative interest rates, with a split between those who believe savers should be compensated and others who say they should learn to invest.

The Christian Social Union (CSU), the sister party to Merkel’s Christian Democrats, has proposed either banning banks from passing on negative rates to savers, or giving savers tax concessions.

But the pro-business Free Democrats (FDP) have branded such proposals as patronising and suggested educating Germans about how to invest in the financial markets instead.

Otto Fricke, the FDP’s budgetary expert, told the broadcaster Deutschlandfunk: “The state cannot be the guarantor of a risk-free life. Consumers need to rethink their ideas and consider ways in which they can invest their money.”

Germany has long been a nation of risk-averse savers, who have steered clear of stock markets, property and other investments. For many even borrowing on a credit card is seen as too risky.

German savers hold an estimated €2.5tn (£2.14tn) in savings accounts, according to figures released earlier this year.

The negative interest rate was introduced to incentivise financial institutions to lend more freely and for businesses and individuals to actively use their money instead of essentially paying the bank to keep it safe. But many banks have passed the rate on to their customers instead.

There has been growing frustration in Germany towards the European Central Bank (ECB) over its low interest rate policy, particularly its 2014 cut in interest rates into negative territory.

The bank’s former president, Mario Draghi, who recently retired, has repeatedly been depicted as “Count Draghila” in the tabloid Bild, sucking the life from savers’ hard-earned money.

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The reactions have followed the news this week that a co-operative bank in Bavaria had become the first lender in Germany to pass on the cost of negative rates to new customers with only small deposits. Volksbank Fürstenfeldbruck, said it was introducing a charge of 0.5% on instant access savings accounts with deposits of €1 and above. Others are expected to follow.

The move has prompted a national outcry, but in particular has prompted politicians in the state of Bavaria to react.

Markus Söder, the state leader, has called on the ECB to rein in its negative interest policy, which he said was causing Bavarians to lose billions every year, and urged the state to compensate them.

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“The state cannot just stand by whilst saving becomes ever more difficult,” he told the Passauer Neuen Presse. “We need to finally come up with a masterplan as to how we can protect savers and free them from the scourge of negative interest rates.”

Söder said German savers were “at the heart of Germany’s financial architecture”. He added: “We are not a nation of speculators, rather, one that budgets reliably, which includes saving.”

Söder said if it was not possible to prevent banks from passing on the negative rates, the only option was for the state to offer compensation, possibly in the form of a tax rebate.

The federal finance minister, Olaf Scholz of the centre-left Social Democrats, has said he is exploring such a possibility, as well as whether banks could be banned from applying the negative interest rates to accounts containing less than €100,000 .

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