Negative interest rates

[Coolcats]

Ok Folks couple of questions, I am sure there will be some financial wiz kids on here

If Interest rates are negative does that mean instead of the cost of services (not servicing) eg motorhome storage will fall by what ever the negative interest rate is?

Does that mean Pensions and wages will also decline by the same % so if CPI or RPI is -.05% pensions may fall ?

Ferry tickets
Bus and rail tickets
The cost of Energy

will all these things fall by the same or similar amount?

 

[68c]

I very much doubt they will drop.

 

[Sandancers]

As I understand it, the negative rate only has a bearing on inter-bank lending. The ordinary Joe won't see any benefit out of it.

 

[TheBig1]

costs will rise, not fall as businesses will be paying bank charges and not earning interest. All costs get passed on to the retail end customer

 

[Coolcats]

costs will rise, not fall as businesses will be paying bank charges and not earning interest. All costs get passed on to the retail end customer

OK so if costs Rise does that mean CPI/RPI will and conversely will that cause inflation?

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[Nasher]

I think you may be confusing interest rates with CPI/RPI?

 

[Coolcats]

I think you may be confusing interest rates with CPI/RPI?

quite probably, if inflation goes up and interest rates go down the I assume we would be less well off

 

[Langtoftlad]

Negative interest rates mean that banks will charge you for having money in your account.
Adds cost to a business, so prices will rise.
Will boost the cash society.

 

[Otter Spotter]

Ok Folks couple of questions, I am sure there will be some financial wiz kids on here

If Interest rates are negative does that mean instead of the cost of services (not servicing) eg motorhome storage will fall by what ever the negative interest rate is?

Does that mean Pensions and wages will also decline by the same % so if CPI or RPI is -.05% pensions may fall ?

Ferry tickets
Bus and rail tickets
The cost of Energy

will all these things fall by the same or similar amount?

Pensions would not drop as the CPI or RPI index is used to only determine annual increases to existing pension payments if CPI in one year was -5% then you would not get an increase that year.

 

[kevenh]

As I understand it, the negative rate only has a bearing on inter-bank lending. The ordinary Joe won't see any benefit out of it.

Negative interest rates mean that banks will charge you for having money in your account.
Adds cost to a business, so prices will rise.
Will boost the cash society.

I hope Sandancers is more right than Langtoftlad
Last summer from checks, I did assume savers wouldn't be charged for their deposits but I've had a quick shufty via a Bing search to see.
That mini-research: -

At current rates most savers are losing money to inflation already.
With a negative interest rate, banks are charged for having money with the Bank of England.
It would be unprecedent in the UK for account holders to be charged for savings.
Maybe larger depositors will have admin charges?
Do expect 0% rates though
An article from today via our site faves: https://www.theguardian.com/business/2021/feb/04/all-you-need-to-know-about-negative-interest-rates

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[glenn2926]

Can anyone who has real life expertise in this area please tell me. Will the bank want me to pay them to look after my savings? If they do expect me to pay they’re going to be severely disappointed.

 

[Langtoftlad]

kevenh
On reflection you're probably right that banks wouldn't be so transparent as to charge interest on a current account balance.
They'd probably 'hide' it monthly fees and/or transaction charges.
AFAIK Britain is one of the few countries to still have 'free' current accounts

 

[kevenh]

Can anyone who has real life expertise in this area please tell me. Will the bank want me to pay them to look after my savings? If they do expect me to pay they’re going to be severely disappointed.

It's unprecedent.
There maybe a financial MHF person that's modelled negative interest rates that can suggest an outcome.

It looks like banks could pass the costs of negative rates to us - but just high fliers / super rich.

 

[kevenh]

kevenh
On reflection you're probably right that banks wouldn't be so transparent as to charge interest on a current account balance.
They'd probably 'hide' it monthly fees and/or transaction charges.
AFAIK Britain is one of the few countries to still have 'free' current accounts

I'm just hoping for the least worst scenario. My trade is electronics - well, keyboard warrior nowadays

 

[Otter Spotter]

Can anyone who has real life expertise in this area please tell me. Will the bank want me to pay them to look after my savings? If they do expect me to pay they’re going to be severely disappointed.

Personally I think they will want to charge but it would take time for the negative rates to effect the banks so much that they would impose the charge. You have to remember that monies on deposit are not just invested by banks in money markets, but also gilts and stocks and shares, as they have a good idea of the total amount of money on deposit that is not going to be needed by deposit holders (you and I) so they know how much they can lock up in investments to create positive returns.

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[Coolcats]

kevenh
AFAIK Britain is one of the few countries to still have 'free' current accounts

You don’t mean we are going to follow Europe

 

[Brains]

Can anyone who has real life expertise in this area please tell me. Will the bank want me to pay them to look after my savings? If they do expect me to pay they’re going to be severely disappointed.

My experience of living in the USA, Germany, Greece and Hong Kong, where banks have always charged you for a bank account, typically about £5 per month (That price was quite a few years ago)

If you don't want to pay bank service charges then you only solution will be to go entirely cash based.

You will need somewhere better than under your mattress to store your money.
The cost of a safe may be more than several years of Bank changes.

It will also mean that you will be unable to renew your Motorhome Fun subscription, unless Jim is prepared to accept £15 in cash sent with a covering letter to his address (cost of stamps and recorded delivery may be more than banking changes)

The same will apply to all utilities payments.
Keep in mind Utilities such as gas and electricity charge a premium for cash payments, as each payment needs to be manually dealt with.

I would expect many companies to refuse cash within the next few years.
All busses, tubes, trains and trams in London stopped accepting cash back in 2014.
Many London based coffee shops and sandwich bars also no longer accept cash.
The rest of the country will follow sooner or later

 

[fullfat]

It looks like banks could pass the costs of negative rates to us - but just high fliers / super rich.

Leave Jim and Lenny HB out of this

 

[frogijock]

Just had letter from Santander. As from 12 April, they are dropping standing charge on 123 current account from £5 per month to £4 per month, interest rate is dropping from 0.60% AER/ gross to 0.30 AER/gross variable. Up to balance of £20,000, does not state anything about savings accounts.

 

[suavecarve]

Up to balance of £20,000, does not state anything about savings accounts.

Have they changed that from £25k ?

Asking for a friend

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[Rapido925M]

Have they changed that from £25k ?

Asking for a friend

Your friend needs to pay attention: it's been £20k for quite a while!

Gordon

 

[Odd-no-more]

I think part of the idea is to persuade people to invest savings instead of saving cash

 

[Minxy]

Why on earth has anyone still got a Santander CA! They've been abysmal for interest for yonks and by the time you take off the monthly fee, even if you maximise the cashback for bill payments, its still extremely poor.

 

[Snowbird]

We in the UK have been lucky that we have not been charged for holding a bank account until now. For many years it has not been so with our EU friends. Currant account charges are the norm in Europe, even Luxembourg and Switzerland charge for looking after your brass. Or so am told

 

[chaser]

Get your money in something you can use while it's going up in value, anything old, cars, tractors, bus's, motorbikes, houses, anything that you have an interest in, numbers on a piece of paper in a bank account are no use until you spend it.

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[Marmite]

Hope they have printed enough banknotes for when folks withdraw and hide it under the matress

 

[Monty don]

In theory with negative interest rates you would be charged to have cash in the bank. But in reality unlikely
As what would you do. Take your cash out the bank
Then banks would have no liquidity.

In theory its to make you spend. And if BOE is thinking of doing it or talking about it then they must think economy is looking grim going forward

But then today they also say economy will pick up late spring if vaccine programs continues as it has

 

[Minxy]

Presently the BoE 'store' the money security for other banks and banks are paid interest by the BoE for this as it allows the BoE to in very simple terms to have 'cheap' loans, however if it goes negative then the banks may instead of receiving interest have to pay a fee to the BoE for securely looking after the banks' funds.

I don't expect the negative rates to affect 'free' bank accounts so they suddenly won't have a 'fee' attached, but it will likely reduce any interest paid on balances, or remove it altogether.

 

[SpeedyDux]

Presently the BoE 'store' the money security for other banks and banks are paid interest by the BoE for this as it allows the BoE to in very simple terms to have 'cheap' loans, however if it goes negative then the banks may instead of receiving interest have to pay a fee to the BoE for securely looking after the banks' funds.

I don't expect the negative rates to affect 'free' bank accounts so they suddenly won't have a 'fee' attached, but it will likely reduce any interest paid on balances, or remove it altogether.

The BoE intention is for the Banks to stop hoarding cash (because the Banks would have to pay the BoE to hold it) and lend more to businesses and consumers instead.

The problem with that is the Banks are risk-averse. So they may wish to pass on those extra costs to customers instead of lending more.

 

[Rapido925M]

Why on earth has anyone still got a Santander CA! They've been abysmal for interest for yonks and by the time you take off the monthly fee, even if you maximise the cashback for bill payments, its still extremely poor.

So what do you recommend please?

I opened a Virgin account and got my free wine BUT it only pays £1.70 per month on a max of £1000 (2.02% gross)
Santander paid £10.13 +£2.92 cashback and charged £5 on £20k (0.6%) [that will drop to 0.3% and £4 charge].
NationWide FlexPlus provides my breakdown insurance plus others for £13pm (=£156 pa - cheaper than other options).

TIA - Gordon

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