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MONEY

Consumer prices in Germany expected to rise further

Inflation in Germany has remained at a high level for months - and after the Russian invasion in Ukraine, consumer prices are expected to rise further.

Diesel and petrol prices at a petrol station in Munich.
Diesel and petrol prices at a petrol station in Munich. After the Russian attack on Ukraine, energy and fuel prices have risen. Photo: picture alliance/dpa | Sven Hoppe

Significantly higher energy prices have been fuelling inflation in Europe’s largest economy, hitting German households hard. Now experts predict there will be another price spike. 

At petrol stations, people in Germany are already feeling the effects of the Russian attack on Ukraine, with fuel prices climbing to record highs in recent days.

According to an initial estimate from Germany’s Federal Statistical Office released on Tuesdaz, the cost of living rose by 5.1 percent in February.

At the beginning of the year, inflation in Germany remained unexpectedly high. Consumer prices rose by 4.9 percent in January 2022 compared to the same month last year. In December 2021, the annual inflation rate stood at 5.3 percent.

Higher inflation weakens the purchasing power of consumers because they can then buy less for a euro than before.

READ ALSO: How will the Russian invasion affect Germany’s gas supplies and prices?

For the time being, there are no signs of the situation easing – on the contrary. Economists expect energy prices to rise due to the Russian attack on Ukraine, which immediately caused price jumps for crude oil and natural gas on the commodity markets.

DZ Bank analyst Christoph Swonke expects that the inflation rate in Germany will continue to go up for the time being.

Meanwhile, economic expert at the Munich-based Ifo Institute, Timo Wollmershäuser, recently predicted: “A five before the decimal point for the inflation rate in 2022 as a whole is becoming more likely than a three.”

In response to rising energy prices, the governing coalition – made up of the Social Democrats (SPD), Greens and Free Democrats (FDP) – has passed a relief package.

For instance, residents in Germany will no longer have to pay the green electricity levy from July onwards. For long-distance commuters, a higher flat rate of 38 cents is planned from the 21st kilometre onwards (from the current 35 cents), retroactive to the beginning of the year. 

Currently, the tax office allows people to write off 30 cents for each kilometre travelled between home and work, regardless of the mode of transport used. 

READ ALSO: How Germany plans to help households cope with rising costs

According to the ADAC, motorists in Germany had to pay an average of €1.811 for a litre of Super E10 on Sunday, 5.4 cents more than last Thursday. Diesel cost an average of €1.729 per litre and has therefore increased in price by 5.9 cents within three days.

And there is no relief in sight: the price of a barrel of Brent crude oil has currently risen to over 100 US dollars, about four dollars higher than last Tuesday, the ADAC calculated.

The dependence on Russia for raw materials is having a clear impact on fuel prices. Last year, Germany imported a third of its crude oil from Russia.

READ ALSO: How Germany could end its dependence on Russian gas

Since the ECB Governing Council meeting at the beginning of February, there has also been a consensus among Europe’s monetary watchdogs that countries can’t simply ride out the stubbornly high inflation rate.

The European Central Bank (ECB) could take countermeasures by raising interest rates. However, the war in Ukraine makes it difficult for the central bank to decide on the further course to be taken at the next monetary policy meeting on March 10th.

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MONEY

Why German bank customers could soon pay less for their account

A major German bank is set to scrap fees on large balances - and a number of others look set to follow. Here's why people in Germany may be paying less for their savings or current account in the near future.

Why German bank customers could soon pay less for their account

What’s going on? 

Interest rates have been at rock-bottom levels for years, making it much harder for people to get returns on their savings.

In recent years, many banks have even been levying what’s known as negative interest rates on customers. If interest normally incentivises people to save by helping them to grow their money, negative interest basically does the opposite.

If you have a certain amount of money in the bank, your bank will charge you negative interest via a deposit holding fee, which will usually be a certain percentage of your balance.

With N26, for example, balances of over €50,000 are subject to a 0.5 percent fee each year. For a balance of exactly €50,000, that equates to €250 in bank charges just for keeping your money there. 

Some banks even charge a deposit holding fee for balances as low as €5,000 or €10,000 in a current account. 

On Tuesday, ING Deutschland became the first bank to announce that it would be scrapping negative interest rates for the vast majority of its customers.

From July 1st, new customers of ING will be able to deposit up to €500,000 in their account without being charged for it, while existing customers will automatically have the fee-free amount raised to €500,000 from the current €50,000. 

Now, it seems a number of other German banks are planning similar moves. 

Why is ING Deutschland ending the holding fee?

Not entirely out of the goodness of its own heart – though that doesn’t stop it being good news for customers.

The European Central Bank (ECB) is set to make a decision on interest rates in the bloc this July, and most people expect that the bank is poised to increase interest rates from minus 0.5 percent to zero. 

Since banks have basically been passing on the ECB’s fees to their own customers, a hike in the ECB’s interest rate would spell the end of most negative interest-rate accounts in any case. But ING Deutschland said it wanted to pass on the positive interest rate trend to its customers even earlier.

READ ALSO: EXPLAINED: How to save money on your taxes in Germany

“With the increase in the fee-free allowance for credit balances on the current and extra accounts, the deposit fee is no longer applicable for 99.9 percent of our customers,” said Nick Jue, chief executive officer of ING in Germany. “We were one of the last banks to introduce a deposit holding fee and one of the first to virtually abolish it.”

He added that the bank had already kept its promise to abolish the holding fee for almost all customers before the European Central Bank made its decision.

Does this have anything to do with that court decision on bank charges?

That’s definitely a factor. According to a decision in Germany’s Federal Supreme Court last year, credit institutions have to obtain the consent of their customers when making changes to their fees and conditions.

That means that financial institutions have to ask for consent to current fees retrospectively if they don’t want hoards of people trying to claim their money back.

If a customer doesn’t consent to the fees, the bank will usually close that customer’s account.

Man signs a contract

A man in a suit fills in an official form. Photo: picture alliance/dpa/Pixabay | hnw-Gruppe

According to ING Deutschland, the scrapping of negative interest rates on balances up to €500,000 may help to sway those customers who have not yet agreed to the latest terms and conditions – including the deposit holding fee.

Anyone who agrees to the Ts&Cs will automatically be given the higher allowance as of July 1st.

“ING Deutschland expects that the increase in the allowances will convince in particular those customers who have not yet agreed to the General Terms and Conditions including the holding fee, and that the bank will thus terminate fewer customers than last planned,” ING said in a press release. 

READ ALSO:

What other banks are planning to do this?

According to reports in Bild and Bialo, the other banks planning on ending negative interest rates (or raising the threshold for fee-free balances like ING Deutschland has done) include:

  • Deutsche Bank
  • Commerzbank
  • Deutsche Apotheker- und Ärztebank (Apobank)
  • Dortmunder Volksbank
  • Hamburger Sparkasse (Haspa
  • Frankfurter Sparkasse
  • Frankfurter Volksbank
  • Mittelbrandenburgische Sparkasse
  • Nassauische Sparkasse (Naspa)
  • Ostsächsische Sparkasse Dresden
  • Sparda-Bank München
  • Sparda-Bank Südwest
  • Sparda-Bank West
  • Sparkasse Hannover
  • Sparkasse Pforzheim Calw
  • Volksbank Stuttgart

What does this mean for my savings?

There’s good news and bad news.

The good news is that, from July, you’ll no longer have to pay exorbitant charges just to store your money in a safe place – and you won’t be penalised for saving more. The bad news, on the other hand, is that low interest rates aren’t going away anytime soon.

So while you won’t be losing money hand over fist, you won’t be earning much of a return on your savings either.

Banks in Frankfurt

Skyscrapers in the financial district of Frankfurt am Main. Photo: picture alliance/dpa/dpa-Zentralbild | Fernando Gutierrez-Juarez

“If the interest rate environment continues to develop positively, we will also let our customers participate in this development,” said ING Deutschland’s Nick Jue. “However, the low-interest phase will continue for the time being and broadly diversified investments will remain important.”

Getting a securities account where your money is invested is one way to try and grow your savings, as is investing in property.

Of course, people with mortgages and other loans benefit from the low interest rates – which could be why the German property market is currently booming. 

READ ALSO: Five ways Germany’s soaring inflation could affect your life

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