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ENERGY

Germany considers how to ease surging energy costs

With energy prices continuing to climb, many politicians in Germany are calling for price-caps and tax cuts.

Germany considers how to ease surging energy costs
The thermostat of a radiator in a flat. picture alliance/dpa | Hauke-Christian Dittrich

Energy prices in Germany have been rising at an alarming rate and, on Sunday, petrol and diesel prices reached a record high.

The unprecedented situation, which has left some experts unable to predict what will happen next, has led many German politicians to call for price and tax cuts for consumers. 

Other European countries have already offered financial relief to consumers – Belgium, for example, has reduced VAT on electricity prices from 21 to 6 percent and given all households a one-time electricity bill discount of €100.

READ ALSO: How prices in Germany will rise as the war in Ukraine continues

Reduction in VAT

On Tuesday, the Handelsblatt Newspaper reported that energy policy spokesperson of the SPD party parliamentary group, Nina Scheer, said that she is open to reducing value-added tax (VAT) on petrol from 19 to 7 per cent.

Speaking to the same newspaper, CSU consumer politician Volker Ullrich demanded a reduction of VAT on electricity, gas and petrol to 7 per cent. 

Also adding his voice to the call for a VAT cut was Bavaria’s state premier Markus Söder. In an interview with ZDF television on Monday, he said: “We need to talk about a price brake for petrol at the pumps as quickly as possible. 

“VAT should be reduced as much as possible and maybe even be reduced to zero with agreement from the EU, so that around 20 percent could be saved. We need to consider all the options.”

The coalition government introduced a relief package back in February to ease the pressure for those struggling to keep up with rising energy prices, but some experts are now calling these measures insufficient. 

READ ALSO: EXPLAINED: What Germany’s relief package against rising prices means for you

Price caps

Energy prices, which have been high for a long time, are hitting the poorest people in Germany hardest, because they are more likely to live in badly insulated houses with outdated gas boilers and without heat pumps.

According to Lower Saxony’s Energy Minister Olaf Lies (SPD) that’s why “we should think about an energy price protection umbrella for consumers and the economy in the short term.

“The protective umbrella should above all help those who suffer most from the current price spiral because they already have little income,” he added. 

READ ALSO: How prices in Germany will rise as the war in Ukraine continues

Bavaria’s economics minister Hubert Aiwanger (Free Voters) is also calling for a state energy price cap to ease the burden on consumers and businesses. Aiwanger’s proposal is for the state to take over the costs as soon as energy prices exceed a certain amount. 

“We have to put a state price cap in place,” said Aiwanger. “For example, the price of petrol must be kept stable below two euros by reducing the mineral oil tax.”

The minister added that the rocketing diesel and gas prices meant that some businesses were struggling to keep up. 

“We supported businesses for two years during the Covid crisis, and must not allow businesses to go under now because of the rise in energy prices.”

This was “an unusual tool”, said Aiwanger, “but in these crazy times it would be necessary”. 

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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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