Premium savings: The tug-of-war continues

From Prof. Dr. Gunnar StarkProfessor of Finance at the Allensbach University

Savers across the country have been fighting for a higher interest rate on their premium savings contracts since the cheaply calculated interest rate was deemed unjust. Our blog takes a second look at the topic: On the civil and banking supervisory law perspective, we refer to the article https://www.allensbach-hochschule.de/banking-tauziehen-um-praemiensparvertraege/ recalled. In the meantime, the Federal Court of Justice (BGH) has referred the matter back to the Dresden Higher Regional Court with regard to the determination of the interest rate. In this context, reference is made below to the financial aspects.

What is it about?

A premium savings contract is an agreement between the bank and the customer for the pro rata, typically monthly, payment of savings contributions to an interest-bearing savings account. In addition to the interest on the savings account balance achieved, the credit institution grants so-called premiums according to a specific numerical system that varies depending on the institution. The premium rate is a percentage point rate depending on the term. Unlike interest, the basis for calculating the premium is not the (total) account balance, but only the sum of the savings contributions in the savings year preceding the premium credit, which allows for seemingly high percentages with premium rates for the last years of the term of 50%, for example.

What are they arguing about?

Unlike the premium rates, the interest rate was often not fixed, especially in the savings bank sector, but agreed at a variable rate at the bank's reasonable discretion. This low variable interest rate was announced on an ongoing basis, for example by means of a notice. Customers regularly had the option of terminating the savings process at short notice at any time and receiving the credit balance after a notice period had expired, whether due to dissatisfaction with the cheap interest rate or for other reasons.

Nevertheless, the Federal Court of Justice (BGH) issued a ruling that puts all customers of premium savings contracts - including those who have accepted the cheaply calculated interest rate for decades without complaint - in a position to demand a different, i.e. generally higher, interest rate from their bank, as the cheap calculation was unlawful. This right exists retroactively for decades because the limitation period is not based on the date on which the interest is credited, but on the end of the contract at the earliest.

What problem needs to be solved?

This raises the problem of how the interest rate that was subsequently rejected as unjustified is to be determined as a substitute. In the context of a contract interpretation, such an interest rate must be found that would (presumably) have been agreed between honest contracting parties - credit institution and customer - instead of the interest rate subsequently recognized as unjust, if the contracting parties had already been aware of the invalidity of a reasonably determined interest rate at the time the contract to be interpreted was concluded.

How has it been solved - so far?

Other courts have subsequently implemented such a supreme court requirement by using a yield figure from the Bundesbank's statistics: the current yield on domestic bearer bonds for mortgage Pfandbriefe with a remaining term of more than nine to ten years, formerly known as the time series WX4260, which after an official renaming now bears the more precise designation BSIS.M.I.UMR.RD.EUR.MFISX.B.X100.R0910.R.A.A._Z._Z.A.

Is the current solution good?

However, its economic suitability does not stand up to financial analysis. The aim of such an analysis is to determine the suitability of WX4260 as a substitute interest rate by examining its peculiarities with elementary considerations. Arguments for and against WX4260 are discussed, an alternative solution is proposed and tax aspects are outlined. An economic argumentation of the BGH is also scrutinized from a financial perspective.

You can read the analysis - which is beyond the scope of this blog - in the latest issue of our "Zeitschrift für interdisziplinäre ökonomische Forschung": Finanzwirtschaftliche Analyse der Rechtsprechung zu Prämiensparverträgen, 2021, p. 53 - 60. https://www.allensbach-hochschule.de/hochschule/zeitschrift/

A journalistic summary has been published by Börsen-Zeitung published a guest article entitled "Interest rate errors in the premium savings dispute" in its print edition of 06.01.2022, no. 3, p. 2, a slightly modified online version of which is freely accessible: https://www.boersen-zeitung.de/banken-finanzen/irrweg-im-praemiensparstreit-734cb5ee-51bb-11ec-b45e-40d03ac0b54e