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Call Money Accounts Offer Negative Real Interest Rates

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Call Money Accounts Offer Negative Real Interest Rates. For a long time, overnight money was seen as an attractive alternative to savings accounts. With better availability, call money accounts often offered higher interest rates. The high availability still applies, but the interest rate – thanks to Mario Draghi – can hardly be used as an argument. Apparently, this does not detract from the popularity of the system.

In fact, overnight interest rates followed the ECB’s key rate cuts with regularity, albeit with a slight delay. They are now on average just 0.15 percent and investors can be almost grateful if the sign of the interest rate is not negative. However, the real interest rate is negative.

Negative interest rates through the back door

Because only if the nominal interest rate is higher than the inflation rate will there be real capital growth. However, the inflation rate in Germany is well above the average overnight interest rate. Currently (as of July) the inflation rate in Germany is 1.7 percent. 1.8 percent are expected over the year. At 0.15 percent nominal interest, that would mean a real interest rate of -1.65 percent. The overnight money invested then shrinks by this percentage in real terms – negative interest through the back door.


The development towards negative real interest rates on call money accounts has been going on for some time. It has existed since the beginning of the decade, but was temporarily interrupted when inflation slipped to practically zero and threatened to tip over into deflation. The ECB countered this with an expansion of its ultra-loose monetary policy and a gigantic glut of money that gradually brought the inflation rate up again.

Paradoxical behaviour of investors

Paradoxically, the Germans reacted to the fall in interest rates by increasing their overnight deposits. In fact, the inflows amount to billions and are almost as high as in March 2009, when real interest rates reached their best value of over two percent.


On average, every German invested around 14,900 euros in overnight money, but only 3,500 euros in shares. There is not much to suggest that this will change anytime soon because the banks have an abundance of liquidity and are not interested in attracting additional investor funds.


Those who do not want to decide to choose more profitable alternatives can, for the time being only research for the most attractive overnight money offers on the market. The interest rate range is still wide. But even the best offers are a maximum of one percent. This can limit inflation damage, but not prevent it. The “attachment” to overnight money is probably also due to the perplexity of many investors in view of the investment crisis – and the hope for better times. There are definitely ways to achieve better returns. Independent and competent financial advice shows you how to do it.

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