Low interest rates on the overnight money market

Even on overnight and fixed-term deposits there is hardly any interest anymore – at least at German banks. The situation looks better abroad. However, caution is advised here.

Earn money by doing nothing. Until twelve years ago, this was completely normal for many Germans. After all, they didn’t even have to invest their money on the stock market to get regular percentages. No, in 2008 it was enough to park your savings in a regular call money account. This earned almost 5% interest per year. So, for example, anyone who invested €10,000 back then would have received an extra €2,800 from their direct bank after five years. 

The emphasis is on “would have”. Because just one year later, the banks’ generous interest rate gifts were over. Mario Draghi, then head of the ECB, drove the key interest rate down to the basement, loans were suddenly thrown at them, and the banks were no longer earning anything. The situation has not changed to this day, on the contrary: interest rates have reached their historic low. 

The downward spiral in the interest rate market has long since reached the providers of call money accounts . Here too, the interest rates are now negligible, which may annoy some savers. However, the whole thing is also annoying for those who have built an entire company on the call money business. The major Dutch bank ABN Amro, for example, launched its Moneyou brand in 2011. An online platform through which customers could, for example, open several fixed-term or call money accounts. 

Since mid-August it has been clear: Moneyou is being shut down. The company has informed its almost 300,000 German customers that the platform will be closed for the German and Dutch markets by the middle of next year. The reason is simple: the daily money business is simply no longer profitable for the major Dutch bank. Because interest rates are now at zero, Moneyou can no longer offer its customers anything that they cannot get from other providers. Moneyou puts it this way: “With persistently low market interest rates, Moneyou, as an online provider with a focus on daily and fixed-term deposits , is no longer able to offer a distinctive service. ABN AMRO Bank NV has therefore decided to close the online brand Moneyou.” 

The platform withdrew from Austria in 2019, and Moneyou will disappear from the German market by 2021 at the latest. For call money users, this means that they will have to invest their savings elsewhere from now on. The only question is: where? After all, German banks hardly pay any interest anymore.

Low interest rates on the overnight money market 

Basically, it was only a matter of time before the first direct banks stopped their business with overnight money. After all, the ongoing zero interest rate era is slowly but surely forcing them to their knees – even if the lean direct banks without a branch network and with low administrative costs are doing much better than the sluggish commercial banks. 

Nevertheless, since market interest rates have even gone into negative territory, providers of call money banks are also paying a high price for every percentage point of interest. Banks are now barely making any profits from lending – after all, it has never been cheaper to take on debt than it is today. What makes home builders happy, for example, gets banks into trouble: in order to continue to cover their ongoing costs, they have to make savings elsewhere. Throwing unnecessary returns at call money customers would be rather inefficient. 

Where are there still interest rates? 

On average, you get 0.1% interest per year on what you have in your call money account. With a deposit of €10,000, that’s just around €10 in “profit” per year. 

The prospects for savers looking for returns on fixed-term deposits are also rather poor: the average interest rate here is €0.70. Because the money is not available at all times but is invested for a predetermined period, the banks are somewhat more generous here. 

Interest rates above 0% do still exist: However, such offers are usually marketing campaigns that only benefit new customers. After a few months at the latest, they will adjust to the market interest rate and fall. 

🚀Daily money comparisonFind the best overnight interest rates in our overnight interest comparison

Interest platforms on the rise

OK, so there is hardly any interest on call and fixed-term deposits in this country anymore. And because that is the case, more and more savers are using so-called interest platforms. The Weltsparen platform , for example, now has almost 270,000 customers. The competitor Zinspilot, which is backed by the Hamburg-based Sutor Bank, has also become an established player in the call money business. 

The recipe for success of both portals: They not only reveal quickly and clearly which bank currently offers the highest interest rates. They also list banks that are located in other European countries and that still offer comparatively high interest rates. 

The French direct bank MyMoney, for example, offers interest of just under 0.4% per year. If you park €20,000 in a bank’s call money account, you’ll get an extra €80 per year. Admittedly, you won’t get rich with it – but compared to the 0.01% offered by most German call money banks, the interest rate is considerable. 

As far as fixed-term deposits are concerned, some interest rates even break the 1 percent mark. The Romanian Alpha Bank, for example, pays 0.9% interest for a term of one year. The Italian Banca Systema even advertises 1.5% interest – but the fixed-term deposit is then stored for 10 years and cannot be withdrawn during this time. 

But how could it be otherwise – there is of course a catch: assets up to an amount of €100,000 are protected by the European deposit guarantee scheme – in other words: if the bank unexpectedly goes bankrupt, the state in which the bank is located steps in and refunds the deposits to the call money customer. That is how it should work in an ideal situation. Whether the state actually steps in in the end is another question, however. The decisive factor here is the country’s creditworthiness, which is regularly checked by the major rating agencies. Countries with an AAA rating, for example, are considered liquid, but from a rating of “A” and lower it becomes critical.

The case of the Icelandic Kauphting Bank in 2008 showed just how bitter the consequences can be for customers if the bank actually goes bankrupt. Because of the lucrative returns, almost 50,000 Germans invested their money in call and fixed-term accounts there – until the bank went bankrupt and customers had to worry about their savings for months. 

So: Call or fixed-term deposits are not investments 

It can make sense to look around on one of the large interest portals to find the right current or fixed-term deposit account. Even with an account at an Italian, Maltese or Romanian bank, you won’t be able to accumulate a huge amount of (interest) wealth over the years. However, compared to the negligible interest rates currently offered by German direct banks, switching to a foreign bank can be worthwhile. 

At least as long as the call money account is not viewed as an investment instrument. To provide for your old age, a fixed-term deposit account may be more profitable than a savings account with negative interest. In fact, however, you can actually make significantly more return with other investments. And that brings us to the good news: the fact that the interest on call money and fixed-term deposits is soberingly low is not a bad thing at all. After all, such an account is primarily a place where the risk-free part of the portfolio can be parked. To build up an emergency fund that can serve as a buffer in difficult times. Or to reduce fluctuations in the portfolio. What else is left in savings can actually be put to work for you: for example, by investing in a fund or ETF through a savings plan.

Nevertheless, it doesn’t hurt to get some interest on the part of your portfolio that you don’t invest in stocks. An account outside of Germany can therefore certainly be considered. In order not to take unnecessary risks, however, investors should always keep an eye on the creditworthiness of the state. At best, the state is rated AAA. 

If you want to park more than €100,000 in a fixed-term or call money account, it is also advisable to open several accounts at once, as the European deposit guarantee only applies up to this limit. If such criteria are met, there is basically nothing to speak against opening a call or fixed-term deposit account in another European country. 

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