Posted on 03/21/2020 10:38:28 AM PDT by ConservativeMind
What are negative interest rates?
A negative interest rate is exactly how it sounds — it’s when an interest rate (or a yield) falls below 0 percent.
It seems counterintuitive. After all, how can a rate actually fall below zero, a number that’s literally meant to be a floor for traditional borrowing and lending activities?
Take Germany, for example. Its government bond yields are trading in the negative territory all the way out to 20 years. Bond yields are negative in France, Denmark and the Netherlands right now, and they were once sub-zero in Belgium.
The Riksbank of Sweden, the oldest central bank in the world, was among the first to implement what’s now known as a negative policy rate, when it announced in 2009 that it would charge banks to hold deposits. Technically, however, the central bank of Denmark in 2012 became the first to bring its key policy rate below zero.
Today, the European Central Bank’s (ECB) interest rate for deposits is minus 50 basis points, while the Bank of Japan’s (BOJ) short-term interest rate target is minus 10 basis points.
“Negative rates have been one of the unconventional policy tools [used] since the global financial crisis,” says David Lebovitz, executive director and global market strategist at J.P. Morgan Asset Management. “If you look at any traditional income textbook, there is no mention of negative interest rates. This has been an experiment over the course of the past decade, with the main players being people like the ECB and the central bank of Sweden.”
How negative rates work
If a yield on a savings account is negative, you’ll (theoretically) have to pay a bank to hold your cash. Think of it like a storage fee.
(Excerpt) Read more at bankrate.com ...
Weren’t interest rates like 18 percent in the 70s?
I was a kid but for some reason I remember hearing crazy rates thrown around
At one point in the 1970’s, Switzerland had a -41% (not missing a decimal point) interest rate on foreign deposits.
With all of this hullabaloo about zero interest rates, lenders are still going to have to come down significantly before mortgage rates are below zero.
Rates aren’t bad now, but I’ve seen better. Actually have better currently.
Excellent suggestion. Paying the bank to hold my savings? A gun is lot cheaper! Stay safe FRiend.
Yes. Having a money market acct back then was like having a part-time job...without working.
How many of those countries restrict their companies from moving lots of money overseas? Can BMW move a hundred million Euros to the US or do they have to accent the German negative rate?
If negative interest rates are a good thing, why are European economies doing so poorly? They have very low economic expansion rates, high unemployment rates and lots of immigrants who will not assimilate.
So you’re fine with them taking interest payments OUT of your bank account?
I had a bunch of utility stocks then (because dividends from utilities were partially tax exempt then) and recall receiving 14% dividends from some of them, least was 10%.
WOW. That’s a phenomenal rate!
Yes, if I set up an account with such a thing.
Remember, the bank does keep the money safe, while it can be stolen from your home.
Negative interest rates are a leftist dream.
Tie that into a cashless society, and ...Tah Dah! A way to “finance” debt.
Exactly. Which is why the same people who scratch their chin at the thought of a negative interest rate go hand in hand with those who want a cashless society.
Interesting/educational discussion. Thanks to all.
Why aren’t credit card companies charged for price gouging when everybody else is?
While counterintuitive, negative interest rates are a demonstration of deflation, in which a dollar spent in the future buys more in goods and services than a dollar spent today.
But folks are right, keeping the money in your mattress or in a home safe is better than keeping it in a bank.
Yes, but remember the inflation rate was about 12-14% per year. So the nominal rate of interest is 16%, the rate of inflation is about 14%, so the real rate of return is about 2%.
Are the banks going to pay me for the debt that I carry on my credit cards?
Banks make more money on overdraft fees etc then they do on lending out your money.
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