Hardly any interest, how outrageous! At least, that's the mood sometimes when it comes to the often moderate interest rates offered by savings banks. Because while savings bank customers often accept relatively low overnight interest rates at their home institution, the public-sector financial institutions reported net interest income of 28.4 billion euros for the past year, an increase of 35%, as the DSGV association stated on Tuesday. The money, it seems, is simply not flowing to the customers. An“„interest rate scandal“, as the tabloids call it."

„There are indeed some savings banks that already offer overnight interest rates of more than 1%. And the BayernLB subsidiary DKB and Frankfurter Sparkasse's 1822direkt are direct banks from the public-sector group that are also active in the market. The era of negative interest rates is over in the savings bank sector as well. But overall, savings banks – like the cooperative sector of Volksbanken and Raiffeisenbanken – do not play a pioneering role in the interest rate competition. Instead, they fall far behind many direct banks, foreign banks and automotive banks when it comes to comparing interest rates. However, this is by no means a „scandal.“

There are good reasons why savings banks operate differently in the interest rate competition. The institutions draw from the deposit pool of a broad investor base and do not need to attract new money as urgently. They have an extensive portfolio of home loans and often many contracts with lower interest rates on their books due to long fixed interest rates – this leaves little room for high-interest rates in refinancing via deposits. And then the Group maintains a network of around 7,700 bank branches across Germany as the Bundesbank broke down at the end of 2022. This is a cost block that many other banks do not have. So why should savings banks offer particularly high-interest rates on savings?

Critics point to the savings bank laws that define the mission of the regional financial institutions. In Hesse and Saxony, for example, savings banks are supposed to „promote saving“, in Bavaria, Baden-Württemberg and Thuringia, they are supposed to cultivate a „sense for saving“; and in North Rhine-Westphalia, they are supposed to promote „personal financial provision and personal responsibility“. The goal of „capital formation“ is also mentioned in several federal states. The highest possible interest rate on savings would undoubtedly fulfil these objectives. But this interpretation is not compelling. A culture of saving can be promoted in many different ways. The interpretation of the consumer advice centres in Bavaria, Hesse and Brandenburg, which see savings banks as obliged to pay positive interest rates, can also be tricky – if negative interest rates were to return, savings banks would be inflexible. Don't forget: Many savings bank laws explicitly stipulate „commercial principles“. This presupposes an economic interest rate.

High-interest rates on savings are also not necessarily the most important raison d'être for a savings bank. The list of expectations towards public-sector institutions is long. Support for local social and cultural issues is explicitly mentioned in some savings bank laws in the federal states. In turn, consumer advocates and sometimes even politicians demand the preservation of the branch network in order to guarantee financial participation for older people in particular. The call for a customer-friendly solution to disputes or favourable basic accounts for the socially disadvantaged also comes up time and again. All these demands on savings banks are legitimate. However, they can come into conflict with the goal of paying high-interest rates to the masses of customers – this applies to the dividend wishes of municipal owners, too.

Therefore, the driving force behind higher interest rates in the savings bank camp is not the public mandate but competition with other banks. DSGV President Ulrich Reuter calls on the group to expand its market share. Interest rate offers play a key role in attracting new customers. Low savings interest rates are, therefore, not a scandal. However, depending on the market situation and competition, they can be a folly.