Base interest rate

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Table of contents:
  1. What is the base interest rate?
  2. Who sets the base interest rate?
  3. When is the base interest rate adjusted?
  4. How is the base interest rate calculated?
  5. Where does the base interest rate apply?
  6. What is the base interest rate used for in debt collection?

What is the base interest rate?

The base interest rate is a rate defined by law. It is not a bank interest rate and not one you earn on a savings account. Instead, it is used as a basis for payment calculations in German civil law—especially when invoices are paid late.

The term is defined in Section 247 of the German Civil Code (BGB). This section states that it serves as the basis for calculating statutory default interest. This means that if someone fails to pay on time, additional money may be demanded. How much that is also depends on the base interest rate.

The base interest rate itself is usually quite low. However, it is not used on its own. A fixed surcharge is added, and only then does it become the interest rate that creditors may charge for late payments.

Who sets the base interest rate?

The base interest rate is not set by companies, banks, or courts, but by a public institution: the German Central Bank (Deutsche Bundesbank). This responsibility is also outlined in Section 247 BGB.

The German Central Bank publishes the current value of the base interest rate. It does so transparently and makes the information publicly accessible—for example, on its website or in the Federal Gazette. This allows creditors, debtors, and debt collection agencies to check the current applicable rate at any time.

Since it is a statutory reference value, there are no variations or discretionary adjustments. It applies uniformly—regardless of the type of contract or industry involved.

When is the base interest rate adjusted?

The base interest rate is recalculated twice a year. The adjustment always takes place on January 1 and July 1 of each year.

This schedule is prescribed by law. That means there are fixed dates on which the rate is reviewed and potentially changed.

To determine whether an adjustment is needed, the German Central Bank reviews specific economic data and calculates a new rate. If the underlying interest rate has changed, the base interest rate will also be updated. If not, it remains unchanged for another six months.

Thanks to this regular adjustment, the statutory reference rate remains up to date—without fluctuating constantly. This provides clarity and reliability, particularly in legal interest calculations.

How is the base interest rate calculated?

The base interest rate is linked to what is known as the main refinancing rate of the European Central Bank (ECB). This ECB rate indicates the cost at which commercial banks can borrow money from the ECB. It reflects the current interest environment within the eurozone.

The base interest rate is derived from the most recent applicable refinancing rate that was valid before the adjustment date (January 1 or July 1). The German Central Bank rounds this value to the nearest tenth of a percent and publishes the new rate.

This means that the rate does not change arbitrarily but follows a clear and transparent method. It is directly influenced by the ECB’s monetary policy but remains stable for a six-month period.

Where does the base interest rate apply?

The base interest rate applies in Germany and is part of the German Civil Code (BGB). It is therefore used in German civil law. This mainly concerns situations where money is owed—such as in contracts, purchase agreements, rent payments, or service fees.

In practice, it plays a role in many legal matters. It is especially important when calculating default interest in cases where an invoice is not paid on time. It is also relevant in judicial procedures or when a dunning notice is issued, for example when a court awards interest on a claim.

For debtors and creditors, this means the base interest rate is a fixed, legal value. It is not just a guideline. It applies automatically and is legally binding whenever the law references it.

What is the base interest rate used for in debt collection?

In debt collection, the base interest rate plays an important role. It serves as the basis for calculating statutory default interest. Creditors are allowed to charge this interest when a debtor fails to pay on time. This is regulated under Section 288 BGB.

Depending on the situation, two different surcharges apply:

  • If the debtor is a private individual, the default interest rate is 5 percentage points above the base interest rate.

  • If the debtor is a business, the rate is 9 percentage points above the base interest rate.

Debt collection agencies use these statutory interest rates to calculate outstanding claims. The base interest rate acts as the starting point for determining the default interest. These interest charges are intended to compensate the creditor for the delay—and to motivate debtors to pay more promptly.

The use of the base interest rate is legally required for debt collection agencies. No alternative interest rate may be applied when it comes to statutory default interest.