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MONEY

German inflation hits post-reunification high at 7.3 percent

Inflation in Germany surged in March to a record high since reunification in 1990, official figures published Wednesday showed, as the war in Ukraine sent energy prices soaring.

A shopper carrying bags in Erfurt.
A shopper carrying bags in Erfurt. Photo: picture alliance/dpa/dpa-Zentralbild | Martin Schutt

Consumer prices rose by 7.3 percent annually, according to the federal statistics agency Destatis, up from 5.1 percent in February.

Russia’s invasion of its neighbour had sent prices for oil and gas soaring and had a “considerable impact on the high rate of inflation”, Destatis said
in a statement.

READ ALSO: Germany’s consumer prices set to rise steeply amid war in Ukraine

The last time such a high rate was recorded was in the autumn of 1981 in West Germany, when oil prices increased “sharply” as a consequence of the Iran-Iraq war, the agency said.

Delivery bottlenecks, aggravated by disruptions to suppliers in Ukraine and Russia, also contributed to the inflation push.

Like many of its neighbours in Europe, Germany is highly reliant on supplies of Russian oil and gas to power its industry and heat its homes.

Germany has opposed calls for an EU embargo on Russian fossil fuels, but fears that deliveries could be curtailed have pushed the prices for the commodities to new highs.

READ ALSO: Why Germany has urged households and businesses to cut back on gas

The previous inflation peak for a reunited Germany came in early 1992, when prices rose year-on-year by 6.2 percent each month between March and May.

Broken down, the cost of household energy and motor fuels rose in March this year by 39.5 percent year-on-year, according to Destatis, while food prices increased 6.2 percent.

READ ALSO: The grocery products in Germany getting more expensive

On the harmonised index of consumer prices, the European Central Bank’s preferred measure, inflation in Germany rose from 7.6 percent in March.

In the eurozone as a whole, inflation sat at 5.8 percent in February, an all-time high for the currency club and well above the European Central Bank’s two-percent target.

With the war continuing to put pressure on prices the only way for inflation in Germany was “up” with the possibility the rate could enter “double-digit territory”, according to Carsten Brzeski, head of macro at the ING bank.

‘Sharp price increases’

Meanwhile, a survey by the German Ifo institute, also published Wednesday, showed “more and more companies are planning to raise their prices over the next three months”.

Consumers have to prepare for “sharp price increases”, the Munich-based think tank said, with food retailers in particular expecting rises, as the war drives up the cost of agricultural imports.

Germany’s three largest unions, IG Metall, IG BCE and IG BAU, earlier in the week called on the government to provide support for particularly energy
intensive industries.

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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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