Direct banks represent a welcome, consumer-oriented trend in the German banking sector. These are no-frill institutions that have made their mark by enticing investors with higher interest on savings and even current accounts. These higher interest payouts come with a slight disadvantage, however. Direct banks cut costs by reducing service personnel and retail branch offices, you cannot expect the full service you get with the more traditional institutions. Fittingly, direct banks tend to draw customers who conduct their banking via the Internet.
Generally speaking, direct banks offer the best interest rates on current accounts. Depending on each customer, the many advantages at first sight of choosing a direct bank over a traditional one may vanish when taking a closer look. While many direct banks do not charge any management fee some charge up to € 10 per month or only pay high interest to clients who keep a certain minimum amount in their accounts.
When choosing your direct bank, you should also make sure that some of your bank’s ATMs are located in your neighborhood or near your office. Some direct banks have very few ATMs, meaning that the fees charged to withdraw from another bank’s ATM (sometimes more than € 4) may represent a more substantive sum than those incurred for having an account with a traditional bank.
Direct Debits, Checks and Balances
Most payments in Germany are made via direct debit from one account to another. As of 2014, all transfers within Europe must be completed using both the IBAN (International Bank Account Number) and the BIC (Bank Identifier Code). This is the requirement in Germany, as well as in 32 other European countries as part of the EU’s Single European Payment Area (SEPA).
The IBAN, which is essentially your account number, contains up to 34 alphanumeric characters. The BIC, which is the identifying code for your bank or financial institution, contains 12 alphanumeric characters. Both codes can be found on your bank statement or on the back of your Maestro / EC card.
For payments of ongoing bills, such as utilities, insurance payments, rent, telephone, tax remittances, certain membership fees and magazine subscriptions, it is in many ways highly advisable (and convenient) to set up a standing order. There are two types: Einzugsermächtigung, which gives your billing party the right to debit your account directly at regular intervals; or Dauerauftrag, which specifies a set amount to be credited to the billing party at a frequency you determine.
The advantage with these systems is that you never have to worry about missing a payment (for instance, if you are away on holiday or emergency leave). A standing order can save you from a penalty fee for late payment or, worse, the embarrassment and extreme inconvenience of having a utility switched off for non-payment. The latter can be particularly painful, as it could entail additional fees for both suspending and reinstalling the service!
Of course, the Einzugsermächtigung, by giving the billing party the right to determine to draw from your account, is also dangerous if misused by irresponsible parties. You should therefore exercise extreme caution when granting this power. Reputable, established companies are fine, as are all government agencies and utilities.
Shortly after you open your current (Giro) account, you will be sent a bank card. This bank card was formerly known as an EC Card, but is now more precisely called a Maestro Card. You will also be issued a PIN number, which in most cases you cannot choose. The Maestro Card can be used to make electronic payments and to withdraw money from ATMs in Germany and throughout Europe. It serves as an acceptable form of payment at any business displaying the Maestro symbol, as well as in many shops and offices that do not display it.
Thanks to its lower fees for retailers, the Maestro Card enjoys almost universal acceptance in Europe and has proven to be much more popular than credit cards. It is a direct debit card, meaning that the payment is deducted directly from your current account, (although it can sometimes take up to a few days before a transaction is processed). If you have overdrawn your current account, you will automatically be charged at your bank’s predetermined annual interest rate (Überziehungskredit). There are no service fees if you use the Maestro Card to make a purchase outside of Germany but still within the Euro zone of the EU.