Europe Fintech

Raisin Finds Average Retail Interest Rate Falls Below Zero in First Major European Market

With inflation sharply up in Europe, consumers and businesses alike face the prospect of paying significant penalties for holding on to their money. Raisin’s latest interest rate analysis shows Germany’s average interest rate below zero, with Spain at zero and the French, no longer sheltered by their high state-subsidised rate through the Livret A, also sliding. Europeans’ savings appear likely not only to lose value, if inflation stays at nearly one per ent but also owe fees for sitting in current accounts at the country’s biggest banks.

Negative rates also weigh heavily on European business, as ten countries now have on average negative corporate interest rates, including Germany, the Netherlands, and Ireland. Large non-profit institutions like pension funds are also paying the price: the German state retirement fund alone had to hand over 230 million euros to the European Central Bank from 2017 to 2020.

The ratios between lowest interest rates and highest rates, market to market across the continent, remained varied but mostly high, with German best rates still coming in nearly 200 times higher than rates at its three biggest banks.

Only in Ireland and Sweden did the big bank rates move at all, falling slightly over the past month. (Ireland’s best rates have previously always come from its big banks, but only because we don’t include data from Raisin’s Ireland platform here.)

All four of Europe’s largest economies have average top interest rates in-market near or at official inflation rates (and from what we’re seeing, if consumers dig into those offers, they’ll find individual options above inflation).

Europeans with the option to put their money across a border into Sweden or Italy, for instance, can expect a return on a 1-year fixed-term deposit, with a real interest rate anywhere between 0.2% and 0.8% depending on where they are in Europe (assuming current inflation rates hold).

Retail Interest Rates

For the first time, the European Central Bank data shows a European country averaging negative rates for retail customers. Germany’s average interest rate on deposits of 1-year or less slipped below zero to -0.01%. Denmark and Luxembourg have sunk even lower to -0.14% and -0.22% respectively, though the volatility of interest rates in both countries suggests that they could be out of the woods sooner than Germany.

Spain’s retail rate fell back to 0.01% after bouncing up a tenth of a percent in recent months. Within the Eurozone, just Italy, the Netherlands, and Malta are staying above half a percent (though the Dutch average is buoyed by subsidised building accounts). Outside the Eurozone, the picture is not much rosier, with only Poland, Sweden, and Romania holding out over 0.5%. France, Spain, Germany and the UK all tanked, a small handful of countries saw increases, including Italy, Austria, Belgium, Finland, Sweden, and Poland.

Raisin CEO and co-founder Dr. Tamaz Georgadze said: “According to the European Central Bank’s consumer survey ‘ECB listens,’ Europeans have begun exhibiting deep financial pessimism after a decade of low and still falling interest rates. The study (though not representative) reveals widespread frustration about low rates, along with intensifying fear of inflation, particularly vis a vis real estate prices. This anxiety and pessimism tracks with Raisin’s own findings in a representative Europe-wide survey of attitudes on interest rates, conducted in March 2020. The long-term pessimism itself in locked-down Europe casts a shadow over the economic outlook.

“While the ECB defends the economic effectiveness of low rates, and inflation targets of 2% have their merit, Europeans still need to to reach at least basic financial goals like securing their retirement. Beyond needed public policy measures, there are two gaps that need to be filled to fend off this dangerous pessimism and make sure they can continue to work toward such goals. One is a financial awareness gap, evidenced by Europeans leaving such staggering sums of cash on their current accounts earning no interest, losing billions of euros in potential wealth. The other is a digital access gap, between the current reality and Europe’s aspiration to a single market – which, when realised, will enable better digital banking and bring the benefits from cross-border offers and hurdle-free online access.”

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