Did you accumulate liquidity cushion within your company account? If yes, you are like many companies in the Corona crisis since large investments tend not to be made in uncertain times like these. But this caution comes at a price: some accumulated accumulates in company accounts is possibly costing you money every month. This is because more and more banks are demanding negative interest rates.
Usually, the debtor pays interest to the creditor. This is the case, for example, when you take out a loan to make a major purchase. You pay interest, which is the price of the loan, so to speak.
With negative interest, this principle is reversed. So, if you keep a larger sum in your corporate account, you will not receive regular percentage credits from the bank, but on the contrary, you will pay money for it with the negative interest. Therefore some institutions euphemistically refer to this negative interest rate as "custody money". But this clearly refers to negative interest, which is sometimes also referred to as minus interest or penalty interest.
But how exactly is this possible? After all, until a few years ago, it was perfectly normal to receive interest on a credit balance because banks could work with this money. But those days are long gone.
This is due to the key interest rate of the European Central Bank (ECB). For some years now, banks have had to pay negative interest rates to the ECB if they want to keep capital there. Although other deposit solutions have been and continue to be discussed internally, storing money at the central bank is still the safest and most convenient solution for institutions. Banks currently pay -0.5 percent to the ECB for depositing the capital. Since the central bank has announced that it will not be adjusting the key interest rate upward anytime soon, more and more banks have started to pass on these negative interest rates to their customers.
The ECB charges negative interest rates in times of economic uncertainty. That way, the central bank aims to get money into circulation in order to stimulate the economy. This means that investments should appear attractive, and the accumulation of large sums of savings should be avoided. For this reason, the key interest rate is raised in times of economic upswing and lowered in times of crisis - as is the case now. Incidentally, the ECB's key interest rate is currently at a historically low level of 0 percent.
Until recently, negative interest rates were rare. Now more and more institutions are starting to pass on the negative interest rates to their private and business customers, as a study found in April 2021.
According to the study out of 1,300 banks surveyed, 456 now charge negative interest rates for corporate customers. And the allowances have also fallen. Whereas until recently negative interest was only charged from around 250,000 euros, a third of the banks have now lowered the exemption limit to 25,000 euros or even less. At some banks, negative interest is thus even charged from the first euro.
In most cases, customers have to pay 0.5 percent negative interest. Bank 1 Saar, for example, charges even more. Here, all business customers who opened their account after March 27, 2020, have to pay a full 0.75 percent negative interest from a balance of 10,000 euros.
Bottom line is that you may be left with less of your accumulated capital if you simply keep your money in the account. Depending on the amount you keep on hand, you can easily end up with additional annual costs of 500 or 1,000 euros - on top of your account management fees.
You can easily calculate for yourself exactly how much money you will lose if you have exceeded your bank's allowance and your bank charges minus interest. The formula is:
(Account balance x negative interest) : 360 x 30 = Monthly cost of negative interest
Example calculation: Let's assume you have an account balance of 100,000 euros. Your bank charges 0.5 percent penalty interest on it. You can therefore calculate the monthly financial burden as follows:
(100,000 x 0.005) / 360 x 30 = 41.67
Accordingly, you would lose 41.67 euros in one month and would have only 99,958.33 euros of your original 100,000 Euros.
You do not have to simply accept this loss. Because there are various ways to avoid the costs of the minus interest rate. For example, you could switch to a bank that does not charge negative interest. Although it will become increasingly difficult over time to find an institution that does not charge minus interest.
Of course, you can also transfer your reserves to a call money account. There are no high returns to be had here - in most cases the interest rate is a meager 0.01 or even 0.00 percent - but at least you won't pay minus interest here. But as a rule of thumb, even this should not be a permanent solution for large sums. Because at less than two percent interest, your reserves will creep down through inflation. That's why it's better to distribute large sums over 100,000 euros among several banks or invest part of the money in one investment.
Yet another way to circumvent the negative interest rate, or at least reduce it, is to use corporate credit cards from pliant in your company.
Because with the credit card you can make payments such as marketing expenses for Google, Facebook and Co. as well as cloud expenses instead of buying them on account with a long payment term. With the card, you can flexibly choose whether you want to pay weekly or monthly.
This way, you save cash by paying faster, which reduces the capital on your account and thus also the minus interest to be paid. In addition, you'll save through attractive cashbacks of up to 1.0%. That's because depending on whether you pay for marketing, hardware, travel or office supplies expenses with pliant's corporate credit card, you'll receive up to five percent cash back. Therefore, you save twice with the corporate credit card from pliant!