Highest Bund yield in 12 years: Call money accounts attract interest hunters again

The financial sky has brightened for investors and savers in recent months. The European Central Bank’s (ECB) interest rate turnaround has also caused capital market and savings rates to shift significantly upwards. Since July 2022, the ECB has raised interest rates in the euro zone by 4.5 percentage points. This week, the yield on ten-year German government bonds, which are considered safe and represent the reference value in the euro zone, briefly rose above 3 percent for the first time since 2011. In previous years, the yield on these bonds had even been negative for a long time.

New interest rate surge on the capital markets

The latest interest rate hike on the capital market was surprising to observers, as the ECB had signaled at its council meeting in early September that it would probably not take any interest rate steps in October. Some ECB council members apparently even see the interest rate cycle as over. However, capital market interest rates are not only influenced by the interest rate decisions of a central bank, but by numerous other factors.

These include inflation expectations, economic development, the creditworthiness and economic situation of a country or company, the general risk environment or interest rate developments in other currency areas. Economists currently assume that rising interest rates in the USA will also push up interest rates in Europe to a certain extent.

In the United States, interest rates have risen because the labor market continues to be very robust and the economy is not cooling down as much as would be desirable to dampen the high inflation in the USA. In addition, the price of oil rallied from July to September, which is driving up inflation. This development could lead to central banks keeping interest rates high for longer than previously hoped on the financial markets, or even increasing them further.

On the one hand, the rise in interest rates has consequences for other segments of the financial markets. For example, the stock indices have been pointing downwards over the past two months. The price of gold has also fallen significantly. The precious metal does not pay interest and has therefore tended to become less attractive compared to bonds. On the other hand, the higher interest rate level is attracting interest hunters again. According to comparison portals such as Finanztip, Check24 and Verivox, the first banks are now offering an interest rate of 4 percent on call money accounts.

Daily money rankings from comparison portals

However, since inflation in Germany was still at 4.3 percent (according to the EU calculation method) and 4.5 percent (according to the Federal Statistical Office’s calculation method) in September, real interest rates are still negative. This means that savings lose purchasing power over time.

Some of the bank names in the rankings with the highest offers for daily savings accounts are probably hardly known to many people. In Finanztip’s ranking, the top three places for an investment of 20,000 euros over six months are C24 Bank (a subsidiary of the Check24 Group), the Swedish TF Bank and Volkswagen Financial Services (a subsidiary of the car manufacturer Volkswagen). Only then do more well-known names such as Consorsbank, Comdirect, Santander, ING and Commerzbank follow.

However, some offers do not even make it onto the comparison portals’ lists. For example, the neobroker Trade Republic currently offers 4 percent interest on the current account and the direct bank DKB (a subsidiary of Bayerische Landesbank) 3.5 percent. However, Finanztip only recommends call money accounts that are unconditionally free. With DKB, on the other hand, you need a mandatory checking account, which would incur account management fees, which is why the name does not appear in the ranking.

Icelandic Kaupthing as a warning example

Investors should at least keep in mind that return and risk always go hand in hand on the financial markets. This also tends to apply to call money accounts, although the German deposit guarantee scheme is an important protective shield here. A case from the summer of 2008 may serve as an example. At that time, the Icelandic Kaupthing Bank offered savings interest rates that were significantly higher than usual for its entry into the Swiss market. This was also due to the fact that the risk premium on the credit derivatives markets was much higher for Kaupthing than for other banks.

At that time, a risk premium of 500 basis points was required for so-called credit default insurance, whereas the Swiss bank UBS charged a risk premium of 80 basis points. Such risk premiums can also be converted into theoretical default probabilities for a bank. For various reasons, financial market participants at the time considered the Icelandic bank to be much riskier than the UBS. Based on this logic, some banks have to offer higher interest rates to attract private investors.

In October 2008, Kaupthing actually had to apply for creditor protection; the accounts of savers from Switzerland (and Germany, Austria and Finland) were blocked. Later, however, UBS also had to be rescued by the state during the major banking and financial crisis of 2008/09. Size is no guarantee against adversity.

Deposit protection up to 100,000 euros

According to the According to the Federal Association for Structured Products, the risk premiums for most of the major banks known in Germany currently range between 50 and 130 basis points, with Deutsche Bank at 124 points and ING Bank at 48 points. However, if a bank or financial institution has not issued any corporate bonds from which such risk premiums are derived, this risk measure cannot be calculated. This applies to numerous direct and neobanks as well as neobrokers.

In the worst case scenario, however, deposit protection of 100,000 euros per bank and customer applies in Germany (as well as the entire EU). This means that even overnight and fixed-term deposits are protected up to this amount in the event of an institution’s insolvency – but customers are not spared the hassle of having to wait until their money is refunded.

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