2024-11-12 17:14:00
Unprofitable savings accounts
Banks pay less interest on savings – and earn more at the same time
With the key interest rate, savings interest rates also fall. The trend is likely to continue. But savers have a strong means of exerting pressure at their disposal.
Savings interest rates are falling at banks.
Photo. Get Bally (Keystone)
- Savings interest rates currently only average 0.52 percent. At the end of last year it was 0.8 percent.
- A further cut in the key interest rate is expected in December. This is likely to put further pressure on interest rates.
- Since customers do not change banks, banks are not under pressure to adjust their fees.
This is bad news for savers. The online comparison service Moneyland.ch has compared the current savings interest rates of Swiss banks. The bitter realization: savings interest rates have fallen in recent months. On average, adults only receive 0.52 percent on savings accounts in Swiss francs. At the end of 2023 it was still 0.8 percent on average.
The reason for this: The Swiss National Bank has lowered interest rates and the banks have followed suit. There is no trend reversal in sight. For the next interest rate decision in December, it is expected that the key interest rate will be reduced again. Savings interest rates will therefore continue to come under pressure.
Many banks take advantage of the fact that savers are reluctant to close their accounts. Adriel Jost, economist and fellow at the Institute for Swiss Economic Policy at the University of Lucerne, explains: “When key interest rates rise, banks can expand their margins because they do not adjust savings rates as quickly as money market rates: customers are sluggish, which allows banks to do less to react quickly to the changing interest rate environment.” This increases the interest margin.
Many customers do not know the conditions of their bank and therefore do not know that if they changed banks they would pay fewer fees and could get a better interest rate. This is shown by a survey published in the spring by the Lucerne University of Applied Sciences.
Now interest rates are falling again. Then the opposite phenomenon occurs. “The lack of pressure from customers allows banks to adjust their savings interest rates relatively quickly, along with the money market interest rates, so that they do not have to make any compromises on the interest margin,” says Jost. Things will only become more difficult for banks’ interest margins if key interest rates fall below zero. “Because they then want to adjust their savings deposit interest less or no longer in order not to lose retail customers – and to earn money with these customers via fees or other products.”
In summary: When key interest rates fall, banks pass this on to savers and reduce interest rates more quickly than if they rise. Then, on average, they raise savings interest rates less quickly.
Inflation eats up savings interest
To be fair, it is also important to pay attention to the real interest rate. This is the interest that savers are left with when inflation is deducted. The fact that the key interest rate is now falling again has to do with the fact that inflation has fallen significantly in the last few months.
However, inflation of 0.6 percent is still higher than the average interest rate on savings accounts. So inflation continues to eat up savings interest.
Customers should therefore compare their conditions. “Despite low average interest rates, there are always large differences in interest rates between the various savings accounts,” says Benjamin Manz, Managing Director of Moneyland.ch.
There is still 1.5 percent per year on the Compte Epargne Plus of the Caisse d’Epargne d’Aubonne and the Steinbockkonto Plus of the Bank EKI, 1.4 percent on the Boost savings account of the Crédit Agricole next Bank and 1.4 percent on the bank’s participation savings account WE 1.3 percent.
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The article discusses the current state of savings interest rates in Switzerland, highlighting a decline to an average of 0.52 percent from 0.8 percent at the end of 2023. This decrease is attributed to the Swiss National Bank lowering key interest rates, with further cuts anticipated, which will likely put additional downward pressure on savings rates.
Several points are noted:
– Banks benefit from customers’ reluctance to switch banks, allowing them to maintain higher interest margins without promptly adjusting savings rates.
– Many customers remain unaware of their banks’ fee structures and interest rates, missing out on better options elsewhere.
– The real interest rate, which accounts for inflation, is crucial to understanding the impact of savings interest. Currently, inflation is at 0.6 percent, surpassing savings interest rates, thus eroding value for savers.
Consumers are advised to compare savings accounts as discrepancies exist among different banks. Some accounts still offer rates as high as 1.5 percent, while the overall trend appears unfavorable for savers in the near term.
