Most savers are reluctant to accept penalty interest rates.
In a recent survey by J.P. Morgan Asset Management, nearly half of Germans (2,000 women and men aged 20 and above) are ready to switch banks if they impose penalty charges, marking a significant shift from last year.
The decrease in the number of Germans willing to stay with their banks despite penalty charges in 2021 compared to 2020 was primarily influenced by the rising inflation and monetary policy changes initiated by the European Central Bank (ECB) in 2021.
The ECB’s revised monetary policy framework and initially misjudged inflation surge caused uncertainties, leading to changes in borrowing costs and financial behaviors among consumers, including bank customers.
One of the key factors was the inflation surge in 2021. Inflation in the eurozone, including Germany, surged notably, reaching 4.9% by November, the highest since the euro's introduction. This inflationary pressure reduced the willingness of customers to tolerate restrictive banking terms like penalty charges as their purchasing power and financial confidence diminished.
Another factor was the ECB’s initial monetary inaction. The ECB initially assumed the inflation would be temporary, delaying tightening policies. When monetary policy was tightened later to address inflation, borrowing costs rose, affecting customers’ decisions about maintaining accounts that may include penalty fees.
The German banking sector itself has been consolidating, with a consistent decline in the number of banks from 1957 through 2023, possibly leading to fewer options for customers and increasing sensitivity to fees and penalties when switching banks or maintaining accounts.
Overall economic uncertainty tied to energy and supply crises around 2021-2022 also affected business and consumer confidence, which may have indirectly influenced banking relationships and tolerance for penalty charges.
Just 5 percent of respondents are willing to accept penalty charges and take no action, a decrease from 23 percent last year. One possible solution to avoid negative interest rates is to split savings across different banks to stay below the thresholds for penalty charges. This year, 26 percent of respondents plan to do this, similar to last year's 27 percent.
Matthias Schulz, Managing Director at J.P. Morgan AM, welcomes the development of more people planning to invest in the capital market. Capital market investments enable capital growth over the medium to long term and help achieve investment goals, despite the slightly higher risk of market fluctuations. This year, 24 percent are willing to take this step from saving to investing to avoid penalty charges, compared to 9 percent in 2020.
Meanwhile, 17 percent plan to spend the funds on consumption, while 18 percent are considering investing in real estate. The shift in attitudes among German bank customers reflects the complex interplay of economic factors and financial behaviours in the current climate.
- In response to increased inflation and the ECB's monetary policy changes, many Germans are now considering personal-finance strategies, such as investing in the capital market, to avoid penalty charges from their banks.
- The rising inflation and financial uncertainties have led some Germans to explore various investment options, like capital market investments or real estate, to preserve their purchasing power and maintain their financial confidence, rather than accepting penalty charges from their banks.
