Interest rates have during the last decade been declining and they have remained low in many European countries. The interest rate is usually cut to encourage consumption and stimulate inflation. Changes in the interest rate should affect banks since a large proportion of its costs and revenues are related to the interest rate. This paper investigates if there is a positive relationship between the level of interest rates and banks’ profits. Furthermore, this paper examines if this relationship changes when interest rates are close to zero or negative. A deductive approach has been used and prior literature have been studied to develop testable hypotheses. The dealership model provides us with a theoretical ground to test how bank profits are affected by interest rate movements. Data on 161 banks have been tested in three different linear regressions with the net interest margin, return on assets and return on equity as the dependent variables together with the interest rate and five other bank-related independent variables. A significant and positive relationship is found between the interest rate and bank profitability, when using the net interest margin and return on assets as the dependent variable. When the dataset is split into two subsamples the strength of the relationship is weaker in the second sample period. The findings in this study are in line with the findings in prior literature and the positive relationship between interest rates and bank profitability can be confirmed. The strength of this established positive relationship is weaker when interest rates are lower. This could entail that European banks have managed to overcome the negative effects of low and negative interest by for example different hedging tools in combination with an increased demand for credit. However, banks are less affected by the interest rate changes when it approaches low levels as they manage to overcome the negative effects it has on their profits. For further research, other measurements of bank profitability can be used as well as analyzing banks in other regions with low interest rates.