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N26 introduces penalty interest on balances over €50,000

N26 recently announced that will introduce a custodian fee of 0.5% on transactions over $59,000 (€50,000). Custodian fees in Germany are usually introduced from $118,000 (€100,000) (Comdirect starts at $295,000 (€250,000)). Premium accounts named ‘Metal’ will be excluded from the new fee, said N26 spokesperson. N26 did not want to give any further details about the motives.

Desmond O'Flynn

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The Berlin-based neobank N26 plans the introduction of a penalty interest of 0.5% on credit balances over $59,000 (€50,000). That is the result of a corresponding change in the list of prices and services as of 19.10.2020. Recently, the homepage of the billion-dollar-fintech company also contains a corresponding note: “For deposits over $59,000 (€50,000), a custodian fee of 0.5% p.a. may apply.”

However, the penalty interest is only to apply to new customers – not to existing customers. An N26 spokesperson confirmed the introduction but pointed out that the premium accounts named “Metal” would be excluded from the new fee. The fee should take effect from November.

Read more details about the custodian fee that N26 will introduce and find the most important business headlines with our companion app Born2Invest.

Why did N26 introduce such a fee?

The measure comes as a surprise because up to now the branchless direct banks such as the German ING, the DKB or the Consorsbank have tended to hold back with punitive interest rate measures – unlike classic branch banks such as Deutsche Bank, Commerzbank or Sparkassen and Volksbanken. 

Moreover, even compared to such banks, the limit of $59,000 (€50,000) seems to be chosen rather aggressively: Custodian fees in Germany are only usually from $118,000 (€100,000) (Comdirect starts at $295,000 (€250,000). According to an evaluation of the consumer portal Biallo, only 23 institutes in this country had a threshold of $59,000 (€50,000) or below, from which they charge penalty interest.

N26 did not want to give any further details about the motives on request of Finanz-Szene.de. According to enterprise-near circles there are to be however above all two reasons for the surprising measures:

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Also N26 must bear ever higher deposit volumes – deposits, for which the Fintech company has hardly used, since it hardly operates classical credit business. This development comes as a surprise when viewed from the outside. 

That is because N26 was previously considered a typical secondary bank to which customers entrust comparatively little money. Has this really changed? It’s hard to say. After all, it is undisputed that the build-up of demand deposits at German banks has accelerated again since the Corona crisis. In Q2 alone, assets in the form of cash and demand deposits of German private households rose by $88.6 billion (€75 billion) – or just under $1.18 billion (€1 billion) per day, according to Bundesbank data.

In addition, according to Finanz-Szene.de information, N26 plans to offer a call money account with a positive interest rate from November onwards. It should help to get the unwanted funds out of the balance sheet. Penalty interest is considered a proven means of maneuvering customer funds from the current account into exactly such products, and a small commission bonus would be added. It is unclear whether the neobank offers the new product on its own or with a partner. It would be conceivable to expand the cooperation with Raisin (“Weltsparen”), which has been running since 2017.

According to the last published annual report, N26 had “liabilities to customers” of $1.26 million (€1,07 million) at the end of 2018. Since the bank was talking about 2.3 million customers at the beginning of 2019, this results in an average balance of around $555 (€470) per customer or account for the period at that time.

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Desmond O’Flynn believes in minimalism and the power of beer. As a young reporter for some of the largest national publications, he has lived in the world of finance and investing for nearly three decades. He has since included world politics and the global economy in his portfolio. He also writes about entrepreneurs and small businesses, as well as innovation in fintech, gambling, and cannabis industries.