Banks are not cheating savers

In view of the healthy income situation of many financial institutions and the increased interest rate level, some of the media are criticising the seemingly over-moderate interest rates on savings deposits. This is against the backdrop of the interest rate turnaround initiated by the Swiss National Bank (SNB) in the middle of last year to combat inflation. As a result, the banks’ interest margins are also gradually returning to normal. In our opinion, the following facts and arguments are central to the assessment.

Criticism largely unjustified

Firstly, the media’s focus on the currently high interest margins in new business shows a distorted picture. It fails to recognise that the average interest margin for domestically focused banks has declined continuously and sharply overall since the financial crisis, from about 1.8% to just over 1% (SNB, Financial Stability Report 2022, p. 33, cf. chart). Seen in that light, the banks’ pricing policy does not appear especially outrageous.

Secondly, the general interest rate level influences the conditions for mortgage loans and savings accounts. Typically, however, striking delays in effect are revealed here. The interest rates of existing mortgage loans are predominantly tied for a long time. Understandably, adjustments to savings interest rates can therefore only take place with a delay. In other words, only a significantly larger observation window over the coming months and years will allow a meaningful assessment of savings interest rates.

Thirdly and finally, competition in the savings market is working – and is highly intense and dynamic. Even the price regulator attests to effective competition in the Swiss banking market and an improvement in the accessibility and transparency of product and price information (Market Observation on Swiss Bank Account Fees, August 2022). In other words, there is no reason to assume that banks are systematically taking advantage of savers.

Fees for closing accounts when changing bank, which were criticised by the price regulator, may present an obstacle in individual cases. Overall, however, the costs of transferring an account to another bank («switching costs») are not prohibitive. Moreover, it is common in any case for savings to be transferred between accounts without the need for account closures. It is this very mobility that contributes significantly to healthy competition. This is also reflected in the observable differences in the conditions of individual institutions. It should also be noted that other forms of savings, such as time deposits, could also become more attractive again; this is precisely where dynamic competition is evident.

Overall view necessary

In summary, it is shown that the average interest margin of the banks is still very moderate in a time comparison, the effects of the new interest rate environment are only partially evident, and functioning competition leads to conditions for savings deposits that are in line with the market.

A clear indication of the flexibility of the interest rate policy was provided by the banks early on: just a few days after the negative interest rate regime was lifted, numerous banks adjusted their interest rates for savings deposits. This illustrates that they do not want to «cheat» their customers out of a fair return on their credit balances – which they cannot do in any case in a competitive market environment.

On the contrary, during the negative interest rate phase, the banking sector adjusted its interest rate conditions with a delay – and not at all for certain customer segments – which, de facto, amounted to a «subsidisation» of savers. The negative interest rates of the last few years have been the problem, not the interest rate environment, which has now fortunately returned to «normal». It remains to be hoped that the SNB’s forecasts will come true and that inflation, the real «yield eater», will soon lessen.