Doing shoddy work for little money – that will soon be a thing of the past …

When the European Central Bank raises interest rates – quite likely in July – it will be costly for those with overdrafts.

Because: With an increase in the interest rate, the cost of the overdraft facility will increase – then 6 million Germans will be affected.

What is the Current Status?

Banks are currently charging an average of 9.43 per cent for miscreants in the account. If the prime interest rate is raised to 0.25 percent or later to 0.5 percent, the overdraft interest could rise to an average of around 11 percent.

“When the prime interest rate was 0.25 to 0.5 percent last time, how much did an overdraft cost,” says Alexander Artope, managing director of the credit portal. Smava,

“In 2014, the Bundestag discussed capping overdraft interest. Nothing has happened to date.”

What are overdraft interest rates based on?

Depending on the bank, the amount of overdraft interest is based on the ECB’s prime interest rate or the 3-month Euribor. This is the interest rate at which banks lend money to each other. In the past, it evolved similarly to the prime ECB interest rate.

For July 2022, the ECB committee has announced a hike in the key interest rate.

If the base rate is increased, banks that align their overdraft rates with the base rate may also increase their overdraft rates. The same applies to banks that align their overdraft interest rates with those of 3-month Euribor, as 3-month Euribor has behaved similarly to the prime interest rate in the past.

How many Germans have overdrawn their account?

On average, 8.7 percent, that is, six percent of Germans, are account negative.

Overdraft is one of the most expensive ways to borrow money.

74.8 percent of consumers regularly turn red, but make up for it after the latest three months.

However, a quarter (25.2 percent) require significantly longer, sometimes up to a year or more. They currently pay an average of 9.43 per cent interest till the account becomes balanced.

“As soon as it becomes clear that I will not be able to balance my account within two, maybe three months, I should be realistic and switch to a cheaper option. It could be an installment loan, for example, Artope advises.

An installment loan charges an average of about 5.5 percent interest across Germany. This is about 42 percent cheaper than the overdraft facility.