New Forest

16/11/2020

Negative Interest Rates – What does it mean?

The next initiative that is being discussed could be negative interest rates. It may seem counterintuitive to charge a business or consumer for depositing money, but that is how a negative rate works.

The policy has been seen in other countries including Japan, Denmark and Sweden and has also been adopted for years by the European Central Bank (ECB). However the Bank of England has never turned interest rates negative in its 326-year history, but now it is exploring all options to boost the economy during the pandemic.

Savers could be charged to keep their money in a bank, although this has not happened in other countries which have brought in the policy and there would be a huge consumer backlash. Families and households are therefore unlikely to have to pay to have their money in a savings account, but the interest rate offered would be expected to fall even more. The real possibility is that customers may be charged to pay monies into their account, if this policy is introduced in the UK.

The positive aspect of this potential change is that you can have a loan which is based on a bank base rate, which means your interest will be less.

The overall aim is to encourage spending to help get the economy somewhere near its new normal.

For further information on negative interest rates, please contact Michaela Johns on 023 8046 1256.

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