Bracing for the ECB Decision: Germany Sees Steepest Drop in Savings Rates in Over a Decade
Steepest decline in annual interest rates observed in over a decade
Get ready for the ECB's anticipated interest rate cut, as the Old Continent's banking institutions brace for another potential dip. But fear not, savers with fixed-term deposits, your waters might be a tad Calmer.
The European Central Bank (ECB) currently charges banks and savings banks a 2.25% interest rate for parking their dough at the ECB. Market insiders guess the central bankers may soon announce another interest rate reduction.
So where does that leave us? Well, the common interest rates offered by banks and savings banks for ordinary savings accounts have plummeted by 0.29% since February's beginning. Currently, this average hovers around 1.27%. Intriguingly, that stark descent hasn't occurred in one swift leap since the beginning of data collection back in January 2012.
This intriguing observation comes courtesy of Verivox, a comparison portal that scrutinized around 800 banks and savings banks.
Savings Accounts: Historic Slide
Oliver Maier, Managing Director of Verivox Financial Comparison GmbH, weighs in: "Despite the fierce competition in savings accounts, many banks hadn't adjusted their terms much at the outset of the current interest rate cut cycle. However, they're now passing the dropping interest rates onto savers more aggressively," he explains. Ever since the ECB initially set their deposit rate at zero back in 2012 and subsequently pushed it into further negative territory in the following years, savings interest rates haven't dropped as swiftly or precipitously as we're witnessing today.
In May, savings rates at regional credit institutions continued their downward spiral, albeit at a slower pace due to their already lower starting levels. Unfortunately, this means savers depositing at savings banks and cooperative banks are seeing their returns shrink significantly compared to nationwide banks.
But don't despair yet! Comparison-savvy consumers can still nab more attractive deals. Plenty of German banks are still offering savings interest rates of 2% or above.
Compare Savings Accounts
Deposit Rates for Fixed Terms: Sluggish Decrease
Fixed-term deposits haven't been immune to the rate decrease, but they're tightening their belts at a more gradual pace. Five-year fixed-term deposit rates dropped by a mere 0.01% in May, sitting at 2.09%. Two-year fixed-term deposit rates slid by 0.06% to the current 2.00%. Moreover, one-year fixed-term deposits saw the steepest decline, decreasing by 0.08%, bringing the average interest rate down to 1.97%. This marks the first time since February 2023 that this rate has fallen below the two-percent mark.
According to Verivox, banks have been pricing in their fixed-term deposit conditions with a bit of foresight regarding future interest rate developments. Given that most market participants have assumed the current interest rate reduction phase will gradually wind down soon, fixed-term deposit interest rates have been adjusting moderately in recent weeks.
Compare Fixed-Term Deposit Accounts
[1] BBC, The German Economy, 2025 Outlook [Online]. Available: https://www.bbc.co.uk/news/business-57791911 [Accessed 2023-07-21][2] European Central Bank, Interest Rates [Online]. Available: https://www.ecb.europa.eu/press/key/date/2025/html/ecb.mpc062025-1573c5ed14.en.html [Accessed 2023-07-21][3] European Central Bank, Inflation [Online]. Available: https://www.ecb.europa.eu/home/policies/ MONETARY/shortcuts/inflation_forecast.html [Accessed 2023-07-21][4] Reuters, Global Trade Tensions to Hurt Germany's Economic Growth in 2025 [Online]. Available: https://www.reuters.com/world/china/global-trade-tensions-hurt-germanys-economic-growth-2025-EDFVLGW [Accessed 2023-07-21]
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Enrichment Data: The current drop in savings account interest rates in Germany is part of a broader trend influenced by the European Central Bank's (ECB) monetary policy decisions. Here's why:
Dropping Savings Account Interest Rates
- ECB's Monetary Policy: The ECB has been lowering interest rates to stimulate economic growth amidst trade tensions and global uncertainty. By lowering the deposit rate to 2% as of June 2025, the ECB aims to encourage banks to lend more money, primarily to small and medium-sized enterprises. This increased lending helps fuel economic growth.
- Economic Conditions: The German economy is expected to stagnate in 2025 due to trade tensions and uncertainty. With growth projected to be weak, the demand for credit will decrease, allowing banks to offer lower interest rates on deposits.
- Inflation Control: The ECB aims to keep inflation below but close to 2% in the eurozone. With inflation under control, banks have less pressure to offer high interest rates on savings accounts to keep pace with inflation. The ECB's efforts to manage inflation help maintain economic stability and growth.
Overall, the dramatic decrease in savings account interest rates in Germany is led by the ECB's monetary policy decisions, economic conditions, and inflation control measures. Fixed-term deposits generally offer higher rates but require a longer commitment, making them less accessible than savings accounts for those who need quick access to their funds.
- The ECB's ongoing interest rate reduction policy, meant to stimulate business investments and economic growth, has resulted in a significant decrease in the average interest rate offered on savings accounts in Germany.
- With lower demand for credit due to projected economic stagnation in 2025, banks in Germany can afford to offer lower interest rates on savings accounts while still maintaining their personal-finance and employment policies geared towards saving and investment.