Dutch banks' savings interest rates too low; Watchdog blames lack of competition

The savings interest offered by the three large Dutch banks still lags behind the European Central Bank’s (ECB) interest rates, the Authority on Consumers and Markets (ACM) said on Tuesday. The watchdog urged regulators to make it easier for consumers to switch banks, putting more pressure on large institutions to offer competitive rates.

The ACM investigated the functioning of the savings market after many signals that savings interest rates in the Netherlands were not climbing along with ECB rates, while interests on loans were. It found that the Netherlands’ three largest banks - ABN Amro, ING, and Rabobank - controlled the vast majority of the savings market and that banking customers rarely switched banks.

The watchdog did not find signs of illegal agreements between the banks on savings interest but called it “plausible” that there may be “tacit coordination” between the big banks. “This means that banks keep an eye on each other’s interest rates and closely follow each other’s moves instead of competing with one another.” That is not prohibited, but its effects are similar to those of a cartel—consumers get lower interest rates than they would in a competitive market.

According to the ACM, the lack of competition is primarily due to few consumers switching banks. For most, it is because they are satisfied with their bank. But the ACM also found that a large group aren’t aware of their options to switch or alternative savings products that offer higher interest rates.

“The results of our study into the savings market show that competition in the Dutch savings market is not functioning properly at the moment,” said ACM chairman Martijn Snoep. “One solution is lowering switching barriers, thereby making it easier for consumers to switch and to benefit from higher savings rates.” The risk of losing customers will also put more pressure on banks to offer competitive rates.

The ACM recommended that the government oblige banks to provide accurate information about their savings products to comparison websites and to publish an annual breakdown of their savings interest rates, so consumers can make a more informed choice.

Several banks only offer savings accounts linked to checking accounts. “That is an unnecessary switching barrier,” the ACM said, urging the government to ban that practice. It also recommended a mandatory switching service for banks. “Consumers will then relatively easily be able to inform another bank how much money they wish to transfer to a new savings account, after which the old and new bank settle this among themselves.”