Euro Deposit

What Is a Euro Deposit?

A euro deposit is a deposit of foreign funds into a bank that operates within the European banking system. These banks function on the consolidated European currency—the euro. When an external investor deposits foreign currency into one of these banks, they are effectively depositing in euros. By putting money into a European bank account, the account holder may expect to accrue interest at the floating interest rate determined by the European Central Bank (ECB).

Key Takeaways

  • Euro deposits are funds deposited in a European account.
  • These deposits allow foreign citizens to invest in euros, collecting on the interest rate set by the European Central Bank (ECB).
  • Rates offered by the ECB for reserves have been negative since 2014.
  • Big banks have started charging customers for euro deposits as a way to pass along the costs.

How a Euro Deposit Works

A euro deposit can be a method for a foreign citizen, or company, to protect their money if their home currency sharply loses value. Banks can stipulate minimums for these foreign deposits. European banks have historically paid customers generous interest rates for "parking" their money in these accounts. This practice encourages wealthy customers and large companies to keep a more considerable amount of money in these European accounts.

However, in 2014, the European Central Bank (ECB) lowered interest rates to below zero for the first time. The rate has steadily fallen since then, now at its lowest rate ever—a negative 0.5% as of November 27, 2020.

This lower interest rate meant imposing negative interest rates on deposits. Many international banks deposit their funds in the ECB. When the ECB initiated negative interest rates, those foreign banks, in essence, began paying to park funds in the ECB. Since negative interest rates resulted in a loss of revenue for the banks, many opted to pass those costs on to their customers.

Special Considerations

Banks in the U.S., such as JPMorgan Chase and Bank of New York Mellon, started charging customers for euro deposits earlier this decade. In early 2017, the Swiss bank UBS began imposing a charge for deposits over one million euros.

UBS said the move reflected “the increasing costs seen across the industry of reinvesting cash from deposits in money and capital markets, the continued extraordinarily low (negative) interest rates in the euro area and increased liquidity regulations.” 

Many central banks around the world have lowered interest rates to below zero. Japan’s central bank, the Bank of Japan (BoJ), decided in 2016 to lower its interest rate to negative 0.1%, which is where it stands as of October 2020.  Though Japanese banks were initially reluctant to pass the costs onto customers, many have imposed fees for larger customers to make up for shrinking profit margins. According to the Japanese bank, customers would not be charged without their consent, but the bank would refuse to allow further deposits if the customer refused to pay the fee.

Some banks have opted not to pass the costs of negative interest rates onto customers. Some have said they feared a backlash from customers, which could result in lost accounts.

Article Sources
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  1. European Central Bank. "Key ECB interest rates." Accessed Nov. 28, 2020.

  2. European Central Bank. "ECB/Eurosystem policy and exchange rates: Official interest rates." Accessed Nov. 28, 2020.

  3. European Central Bank. "Going negative: the ECB’s experience." Accessed Nov. 28, 2020.

  4. The Wall Street Journal. "Big Banks Start Charging Clients for Euro Deposits." Accessed Nov. 28, 2020.

  5. The Financial Times. "UBS to charge private clients for large euro deposits." Accessed Nov. 28, 2020.

  6. Bank of Japan. "Introduction of Quantitative and Qualitative Monetary Easing with a Negative Interest Rate," Pages 1, 5. Accessed Nov. 28, 2020.

  7. Bank of Japan. "Statement of Monetary Policy," Page 1. Accessed Nov. 28, 2020.

  8. International Monetary Fund. "Pushed Past the Limit? How Japanese Banks Reacted to Negative Interest Rates," Page 14. Accessed Nov. 28, 2020.

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