Negative interest rates are coming. Here’s what it means for your money


In the letter

  • The British central bank is considering negative interest rates.
  • Yesterday, he sent a letter to the country’s banks to assess their readiness for negative rates.
  • Does this mean that banks charge customers for deposits? Expert opinions vary.

The Bank of England yesterday sent a letter to banks across the country asking if they were ready for negative interest rates.

Bank of England’s Monetary Policy Committee wants to get some idea how negative interest rates would hit the UK economy, which has been hit hard by the coronavirus pandemic. Central Bank Governor Andrew Bailey said yesterday that the economy may take longer to recover of the pandemic than expected.

The letter sought “information to understand the operational readiness of companies and the challenges of potential implementation, especially in terms of technological capabilities.” The Committee will decide whether to adjust the interest rate on November 5.

But what would that mean for your money in practice?

Negative interest means central banks would charge financial institutions to store money. Since it would cost banks money to hold cash reserves, they would encourage their customers to do not hold money with them. This would encourage increased spending and risky behavior, both offers to jumpstart the economy.

So, would banks, in an attempt to impose costs on their customers, start charging deposits, as happens in some Scandinavian countries that have introduced negative interest rates?

The tea leaves appeared differently to the ones we requested.

“I don’t think it will get to the point where banks charge consumers, but it will definitely cause savers to run out of cash to look for other yield opportunities,” said Simon Peters, market analyst at the site. of eToro social trading. Decrypt. Peters imagines that loans and mortgages would be cheaper – if the banks lend their money.

Meanwhile, Yuval Reisman, CEO and co-founder of YRD Capital, a crypto hedge fund that operates out of London, told us he was uncertain. “If so, it would be another blow to the consumer, as interest rates are currently extremely low.”

And Harold Montgomery, who runs the intercontinental money writing service, Wirex USA, said the banks will bill customers who place funds with the bank, ” if continental Europe is an example. »

“This means if you deposit 100 GBP it will decrease in value every month as the bank charges you to keep your money there. This has the effect of forcing spending because people want to realize the value of their money before it goes down, ”he said.

Rob Viglione, co-founder and CEO of Horizen Labs, summed it up well. “No one really knows what’s going to happen with negative interest rates,” he said. Viglione cited research indicating how low interest rates lead to increased investments in risky assets, “And we can only wonder how negative rates are going to ruin everyone’s long-term financial life.

Increased investment in risky assets like, uh, crypto? Bitcoin holders have high hopes. But with Brexit looming and the T’s far from being crossed, the UK government is taking risks on behalf of all of its citizens.


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