Euro Deposit

A euro deposit is a deposit of foreign funds into a bank which 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’s holder may expect to accrue interest at the floating interest rate determined by the European Central Bank (ECB).

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 coin 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. 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.

A Wall Street Journal 2014 article said that in the U.S. the Bank of New York Mellon Corp began charging .2 percent on euro deposits. Other banks, such as Goldman Sachs and J.P. Morgan Chase have also been passing on these costs to customers.

In early 2017, the Swiss bank UBS began imposing a charge of .6 percent on deposits over 1 million Euros. According to Financial Times, USB stated the move reflected, “the increasing costs seen across the industry of re-investing cash from deposits in money and capital markets, the continued extraordinarily low, or 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 December 2017 to keep interest rates at negative-one-percent. 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. 

As reported by Reuters in May 2017, 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.