Imagine paying 100,000 euros into your checking account, only to rack up negative interest rate charges of 400 euros a year.
That may sound like a terrible deal, but it’s exactly what one small German bank is doing.
Raiffeisenbank Gmund am Tegernsee, a community bank in southern Germany, said it would charge a fee of 0.4% on deposits of more than 100,000 euros held in current accounts.
The bank’s new policy is expected to hit only a small number of retail clients. Local media reports suggest the total number of customers affected will be less than 150.
The move, however, is an answer to the European Central Bank’s negative interest rate policy.
“The trigger is the ECB’s disastrous policy of low interest rates, which is having an ever greater impact,” said Cornelia Schulz, a spokeswoman for the National Association of German Cooperative Banks, an industry group.
The ECB, which sets interest rates for the eurozone, cut benchmark interest rates deeper into negative territory in March. Central banks in three other European countries — Switzerland, Sweden and Denmark — have also set negative rates.
Negative interest rates charge banks for holding onto cash. They are designed to encourage banks to lend money to boost the economy.
Many banks in countries with negative interest rates have passed the burden onto their business customers, according to research by the Bank for International Settlements. But actually charging retail customers negative interest rates has so far been taboo.
“The psychological impact of the actual money shrinking would be huge and you would see a swathe of customers, at a level we’ve never seen before, ditching any bank that imposed negative rates,” said Martin Lewis, founder of MoneySavingExpert.com, a personal finance advisory in the U.K.
Schulz said she doesn’t expect negative interest rates to become mainstream just yet. But she warned about the impact of ECB’s policy on the sector.
“The ECB’s extreme approach to monetary policy is particularly toxic to personal pension products, but also to the stability of the financial sector as a whole,” Schulz said.