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“Custody fees” for savings from municipalities?

Can banks charge “custody fees” on municipal savings deposits? You have to know that in certain cases banks have to pay “penalty interest” of up to 0.5% for deposits with the European Central Bank (ECB) (with certain restrictions, directly or through the sector bank). For this reason, banks in Austria are increasingly beginning to charge a fee for deposits from municipalities of a certain volume.

One speaks of “custody fees for savings deposits” or “negative interest on deposits”. This fee is more and more common with daily deposits from municipalities. When binding e.g. For 12 months or more, the bank can partially prevent the ECB from paying interest on the penalty and thus refrain from charging the municipality. A possible limit from which fees are charged is e.g. at EUR 5 million; however, cases with a significantly lower volume are also known.

It should be noted that this fee for private customers in Austria is currently excluded by an OGH judgment. However, communities are treated as non-consumers like companies. And here, as is so often the case in the financial sector, the legal starting situation is once again unclear. This fee is usually derived, among other things, from about the general terms and conditions of the bank. In addition to asking or checking whether this is legal, one should also deal with the possible economic effects.

Some banks pass on this penalty interest to the municipalities up to 0.5% as a deposit or custody fee. Basically, the behavior of the banks is related to their own liquidity situation. In addition, the scope and quality of the customer relationship is often decisive, whether the fee is charged to the customer or not. With a deposit volume of exemplary EUR 2 million, this fee can be up to EUR 10,000 per year (but this can also be less or even zero).

A municipality now has different options for action in the event of (threat of) offsetting. These range from a legal check, negotiations, bank bills or alternative investments or alternative safekeeping to splitting and solutions in the context of active liquidity management. As part of our advice, we always prefer a solution based on the partnership relationship between municipalities and banks.

We will be happy to answer any questions you may have: [email protected].

About The Author

Heinz Hofstaetter
Over 20 years of international experience in senior management positions in the areas of consulting, banking, finance, asset management, valuation and Real Assets.