For the majority of cities and municipalities, financing issues continue to be the top priority. External finance controlling, including a tendering service for borrowing, can help here. During the months of the crisis, many tried to bunker enough cash. For some, this leads to problems. At the moment, therefore, the question no longer arises “if”, but only “from when”. We are talking about “custody fees” for deposits.
In certain cases, banks have to pay “penalty interest” of 0.5% (directly or indirectly) for deposits with the European Central Bank (ECB). For this reason, more and more banks are starting to charge a fee for deposits from municipalities above a certain volume. One speaks of “custody fees” or “negative interest on deposits”. This fee is becoming more common on overnight deposits. In the case of a commitment of e.g. 12 months or longer, the bank may be able to prevent the penalty interest from being paid to the ECB and refrain from offsetting. According to my experience, the lowest limit from which fees are charged by municipalities is EUR 100,000. Some banks have increased this to EUR 300,000 to 500,000; others are (still) flexible.
It is worth mentioning that this fee is currently excluded for private customers in Austria for savings deposits (not on current accounts) due to a supreme court ruling. However, communities are treated as non-consumers, just like companies. And here, as is often the case in the financial sector, the legal starting situation is once again not clearly regulated. This fee is derived, among other things, from the general terms and conditions.
Many banks pass on this penalty interest up to 0.5%. Basically, this is related to your own liquidity situation. In addition, the scope and quality of the customer relationship is also decisive as to whether the fee is charged or not. With a volume of e.g. EUR 2 million, this fee can amount to up to EUR 10,000 per year. It cannot be ruled out that an even higher fee will be charged in the future.
There are now different options for action. These range from a legal review, negotiations, bank bills or alternative investments or alternative custody and splitting to solutions within the framework of active liquidity management. In addition, the (initial) demand for custody fees can be used as an opportunity to examine the existing loan portfolio with regard to optimization or whether there are still expensive, older loans with a higher variable interest rate (e.g.> 1%). These could possibly be repaid early. This reduces or avoids the custody fees and eliminates expensive old loans. Of course, there is also professional, external support for this. In any case, considerations of risk and return should always be in the foreground when making deposits from municipalities. For this reason, it can also be a strategy within the framework of a partnership relationship between municipalities and banks to (partially) accept this fee and to review the overall cost ratios across all services at the (house) bank. These are at least loan interest (including cash advances), custody fees and payment transaction costs.
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