In its annual report the National Bank of Bank of Belgium says that the rate of interest banks in Belgium are paying out to customers with savings accounts is too low compared with the level of interest currently being charged on the financial markets. Moreover, in order to benefit from a higher rate of interest on their savings customers often have to open a new account with existing accounts still being subject to very low rates of interest.
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National Bank says that interest on savings accounts is too low
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In recent months almost all Belgian banks have increased the rates of interest that they pay to savers with savings accounts. The banks have moved away from paying their customers the legal minimum interest rate of 0.11% on their savings and now offer higher rates of interest.
Of the four main high street banks in Belgium BNP Paribas Fortis offers the highest interest rate on a savings account. This is 1.25% for new savings accounts opened at one of the bank’s branches or via its call centre. Those with existing savings accounts at BNP Parisbas Fortis receive 0.25% interest on their savings.
The tactic of paying a higher rate of interest out only to customers that have opened a new account is a widely used marketing technique designed to attract new customers. At the same time the banks hope that their existing customers won’t all go to the trouble of opening new accounts to benefit from the higher rate of interest.
It is seven months since the European Central Bank (ECB) first raised interest rates. However, this has largely failed to be reflected by the levels of interest paid out to savers. This hasn’t escaped the attention of the National Bank of Belgium (NBB).
NBB’s Governor Pierre Wunsch (photo above) told VRT News that “We note that interest rates on savings accounts are much lower than the market rate. I think that we are in a transitional phase. In time the rate paid to savers will near that on the financial markets. If this were not to be the case it would point to there being too little competition between Belgian banks and that would be a structural issue”.
Mr Wunsch points to the ECB’s deposit rate that has been increased in 5 steps from -0.5% to 2.5%. The deposit rate is the rate of interest that banks received on money from their customers’ saving’s accounts that they haven’t lent out in the form of credit, loans and mortgages. The deposit rate currently stands at 2.5%.
NBB warns the banks
The National Bank of Belgium has issued a warning to the banks. A large portion of the banks’ financing is drawn from cash deposited on current accounts and savings accounts held by individuals and businesses. This is used by the banks for, for example, mortgages.
NBB’s annual report reads "To ensure the stability of these deposits as a source of finance for the Belgian banking sector, the (interest) payment should be in line with the market situation. If this is not the case there is a risk that money will flow away from savings accounts to other forms of investment”.