There is a new fear among Germans. More precisely, among German savers. It is the fear of the introduction of penalty interest rates, negative interest rates whatever you want to name them. These are synonyms for one and the same term. But what are penalty interest rates, and why will they be introduced? That’s the topic of my new video. For quite some time the news have spread the claim that private investors will soon be obliged to pay a fee for their savings instead of receiving money in return – as it used to be the case. Until now, only wholesale investors were affected by penalty interest rates when they wanted to transfer money to their savings accounts. Now private investors will (most likely) be obliged to pay a fee, too. This is actually a very surreal situation in a country that taught us that saving money is profitable for decades “Save now, then you have money in bad times”, is what we used to say. A saying my parents taught me. I still remember vividly, when I was a child the savings bank would visit our school and put the money from my piggy bank into a savings account. As reward, we got stuffed animals or crayons. This way, even as child, I knew saving money is profitable. For a long time, the International Savings Day was said to be the most important holiday for savers. And I still remember my freshmen years at the Sparkasse. At the beginning of the year there were long queues in front of the cashiers and the savers wanted to credit their interest rates to their savings accounts. They always left the branch with a smile. This is supposed to be all over now? Savers have to pay money in order to save money?! I think this is a breach of taboo! Let me explain it with help of a simple example. Assumed we have an investment of 10.000 € – no matter if we put it into our savings account or our daily allowance If I have to pay 0.4% penalty interest, this makes 40 € At the end of the year, my savings account does not hold 10.000 €, but 9.960 €. If we also consider the inflation rate (which is used to measure how prices are going to develop) If the inflation rate will increase by – let’s say – two percent, this equals 200 € of our 10.000 € Consequently, 9,760 € remain of my original 10.000 €. Now you can calculate yourself how much money you will lose in the period of time. Currently, almost every financial institute considers how to introduce penalty interest rates. And they debate how high the penalties are going to be. For example, they consider an allowance. Rumors claim that the allowance will be as high as 100.000 €. Moreover they debate if there will be a difference for classic savings in a savings account and savings in the daily allowance. Because a classic saving is legally a loan to the bank, with interest paid to the saver, the question arose if the introduction of penalty interest rates are even legal? Well… There is a high number of legal and sociopolitical questions that need to be answered. But I am certain that there will be answers. And I am also certain that private investors will be obliged to pay for their savings in the future. On the surface, this might sound like a bold rip-off by the banks. But it’s not! The economic distress is responsible for the introduction of penalty interest rates on savings since the banks and financial institutes have been under huge income pressure for the last couple of years. Banks, too, need to pay negative interest on their savings at the ECB. These rates have recently been raised to 0,5 %. This additional financial burdens need to be compensated by the banks. There will most certainly be raises in all possible departments. There will be eliminations in HR and many branches will be closed. Nonetheless, this will not be enough to compensate the additional financial burdens – the Deutsche Bank talks about two billion Euro in the next four years – Thus, the introduction of penalty interest rates for private investors seems to be inevitable. I am very certain about this. But why does the ECB charge the banks penalty interests anyway? In easy words: The European Central Bank doesn’t want banks to save money. The ECB wants that this money is spent as loans. Plus, there is the so called zero-interest-policy. This means that banks can get loans from the ECB with zero percent interest. This way customers are supposed to be motivated to get a loan for investments which will then help the economy. Also private customers benefit from this zero percent interest on loans, as they get cheap loans to build a house or to purchase goods. States also benefit from low interest rates regarding their national debt. This low-interest-phase began when the ECB bought a vast amount of loans Currently the ECB has purchased government bonds and business loans worth more than a trillion Euro. Hence, the market is full of cash. And this cash is responsible for keeping interest rates low. This low interest policy will most likely continue in the future. This will not change even though there is a new president of the ECB – Mrs. Lagarde She has already stated that the low interest phase will continue. On the one hand, this is an advantage for borrowers, no matter if they are businesses, private investors or states, because they will continue being able to get loans for historically low interest rates. But on the other hand, savers will suffer. Wholesale investors such as life insurance companies, pension insurance companies, or foundations and also the private investors. But what am I supposed to do with my money, if I want to save it? My next video will deal with this topic in detail. 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