Banks Have Little Interest in Passing on Higher Rates

Banks rarely pass on rises in key interest rates to customers overnight. Will banks react differently to the recent interest rate hike?

The Swiss National Bank's (SNB) 50 basis point interest rate hike on Thursday was widely expected, allowing Swiss banks plenty of time to think about when and by how much they would raise interest rates on deposit balances after interest rates reached the current level of 1,5 percent.

Yet, there is little reason to get excited. Although a handful of banks announced that they would lift interest rates, the increases for savings accounts correspond, on average, to a mere 30 basis points.

Waiting Until May

Some institutions will implement the rate change from April, while others are waiting until May. Postfinance, for example, is raising its interest rates on savings and retirement accounts as of May 1.

Savings accounts now pay 0.7 percent up to 50,000 francs. Previously, the rate was 0.4 percent up to 25,000 francs. Shortly before the SNB decision, Bank WIR presented a new savings product, which offers an interest rate of 1.8 percent. The interest rate on all other savings and pension products will also gradually increase by a total of at least 0.3 percent from April.

At Graubuendner Kantonalbank (GKB), the interest rate on long-term savings will increase by up to 1 percent, depending on the level of the so-called «savings pyramid.» Baloise Bank is now also offering 1 percent. Valiant is going even higher. Rewarding new accounts with 1.5 percent interest.

The Hour of the Bait-and-Switch Offers

Speaking of new money: Now is also the hour of the bait-and-switch offers, with which the actual longer-term interest yield is concealed or availability is limited by a series of conditions. Higher interest rates only for newly opened accounts or new money, restrictions on free withdrawals or notice periods with corresponding penalty rates for non-compliance are part of the repertoire almost everywhere.

Not to be forgotten are the ongoing fees. At Postfinance for example, recouping fees of 60 Swiss francs per year by accruing interest, takes at least 8,570 francs in savings.

Relying on Customers' Sluggishness

The different terms, conditions and clauses make a real comparison between the offers very difficult for bank customers. Although the price supervisors in their last report attested to progress made by the banks in terms of transparency, they criticized the fees as being too high.

During the period of low-interest rates, banks raised and expanded fees. As with interest rates, they are happy to take their time in reversing the trend and are relying on customers' sluggishness. Fierce competition looks different.