Banks in Europe are doing the unthinkable…
They're turning away large cash deposits. I'm not kidding…
Deutsche Bank, one of Germany's top lenders, is effectively turning away many deposits of 100,000 euros or more. And if it does accept your deposit, then it will charge you a 0.5% annual fee to keep your money in the bank.
You're paying the bank to hold your cash. And at 100,000 euros, you're losing 500 euros a year in negative interest.
If this sounds a bit crazy… well, it is.
Today, I'll explain why it's happening…
We've gotten used to near-zero interest rates at major banks since the global financial crisis. But paying them interest on your savings? That feels like an idea from another planet.
It's happening all over Europe, though. The same is true for Commerzbank, Germany's second top lender.
Here's what a Commerzbank spokesperson had to say about it in a recent Wall Street Journal article…
Our primary objective is not to collect such a deposit, but to advise and reallocate funds to other forms of investment.
The fees are a tool to drive new large deposits elsewhere. And customers are getting the message.
One customer moved his money away from Commerzbank. His reasoning – shared in the same article – is incredibly obvious. As he put it…
I wouldn't mind receiving nothing for my deposit, but being asked to pay is just too much.
With rates going negative, folks can't stand the idea of losing money on their accounts. It's a call to action like we've never seen before.
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More than 230 banks in Germany alone are charging fees like this to private customers. While negative rates have been around in Europe since 2014, this is a relatively new phenomenon.
In 2014, when the European Central Bank first started charging banks negative rates, European banks pledged not to pass the cost to customers. For six years, they were able to eat the negative cost and still be profitable. That's no longer the case…
With pandemic uncertainty, and people saving more due to staying home, folks have flooded banks with cash.
Deposits are a liability for banks. The more deposits a bank holds, the more money it has to store away at the central bank to cover those liabilities. Before the pandemic, this wasn't a big deal… Banks could cover the negative rate charged by the European Central Bank and still profit on large deposits.
But with deposits through the roof, they can't afford to eat that negative rate anymore. So they are either charging fees or turning away potential customers, using new online tools to guide folks elsewhere.
This is truly crazy. Banks thrive when they're able to grow deposits. But now, they're actively trying to avoid it. And everyday customers are facing the unbelievable scenario of paying to deposit their cash.
If you don't live in Europe, this might not affect you personally. But this crazy banking quirk does mean something big for all of us as investors.
Folks in Europe now have a few ways to handle their cash…
They can pay a fee to store it at a bank – or earn zero interest, in some cases. They can keep it under the mattress, which isn't ideal. Or they can put that money to work somewhere else… like the stock market.
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That's exactly what these low-interest-rate policies are designed to do… get folks investing. And with negative rates pushing Europeans out of the banks, that's a near certainty in the months ahead.
Good investing,
Steve
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