As a result of the recent negative deposit rates levied by the central banks in the region, some smaller banks in Switzerland and Germany are presently finding it hard to provide the appropriate answers to the situation. In the last few days, various lenders have made a pronouncement of new policies. The penalty in the form of interest on the savings of private customers was either presented, modified or annulled.

In the case of the PostFinance AG in Switzerland, the penalty interest was introduced. A levy was placed on account balances of 500,000 francs or exceeding the amount by October 1. However, the limit previously used was on account balances in the region of one million francs. The levy is equal to one percent of the money that surpasses the threshold.

According to the spokesperson of PostFinance, Reto Kormann in his interview with Bloomberg, he confirmed that PostFinance had received more than five hundred million francs in client funds in the last one year even though the financial institution is not paying any interest. He said there is a need to stiffen the fee regime to stop the resilient new money inflow and achieve an outflow of the funds of the customers. He also said that PostFinance, as a state-owned financial institution is not permitted to borrow money on its volition thereby making a few products available to counterbalance the inconvenience of negative interest rates.

On the other hand, Hamburger Sparkasse AG, which will soon be introducing its penalty interest levies, also explains its resolution with higher expenses for liquid funds. According to its spokesperson, Stefanie Von Carlsburg said if their customers store huge deposit cash in their checking accounts, it will have financial implications on the daily operational cost of Haspa. She said a valuation of the low-interest environment’s burden in recent years was calculated to be a high double-digit million euro per annum.

Carlsburg confirmed that a levy of 0.4 percent would be placed on private savings of 500,000 euros or more by the lender starting by September. She even said that the levy does not take care of the expenses earned by the ECB’s penalty rate for bank deposits as they have to offer payment for deposit insurance. According to the information released by the German Savings Banks Association, the lender was the biggest savings banks by assets in 2017 in the whole of Germany.

In contrast to the Haspa’s policy, Hamburger Volksbank eG has resolved to revoke its 0.2 percent penalty rate, which was announced in the first phase of 2017 for individual account balances of 500,000 and more in some accounts. According to the spokeswoman of Hamburger Volksbank eG, Heidi Melis, she said that customers who were affected by the policy moved their cash from their respective accounts as time goes by. This led to the presence of a few clients with a balance of 500,000 euro, and the bank chose to abolish the penalty rate. The cash flows will continuously be checked to see how it will evolve in the future.

Most lenders will repay the money they acquired from central banks. However, the European Central Bank has a deposit rate of minus 0.4 percent, and the Swiss National Bank deposit rate is currently at minus 0.75 percent. Pushing these expenses to the corporate clients by compelling them to pay the penalty interest is not an uncommon occurrence, but this step is the concession for private clients in the area.

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