Negative Interest Rates

[Gan020]

I received the following yesterday from my broker:

"We would like to inform you that from 1 April 2020, we will be introducing negative interest rates to our clients holding cash in EUR, CHF or DKK.

In 2019, the European Central Bank lowered its deposit rate to -0,5% to stimulate the economy. This has led numerous European financial institutions to follow suit, and effective 1 April 2020, Saxo will charge interest on EUR, CHF or DKK balances above the thresholds listed below. ...

...
Threshold Rate for balances for threshold
EUR 100,000 -0,50%
CHF 100,000 -0,75%
DKK 750,000 -0,75%


So, I assume the timing of this is not co-incidental and that it's costing Saxo too much to keep cash balances and their only solution is to discourage them. Tells us just how serious this is when a broker says they don't want your cash!

I assume a number of major banks have been parking their money there as an alternative to crazy 40 year government bond yields.

So, what's the impact? I guess many clients will be discouraged by the charge, which is significant at 0.5% and will want another home, but I don't think Saxo would be doing this unless they were pretty sure there wasn't another home, else their business model is destroyed.

Saxo suggest the following solutions:
1. managed portfolios
2. ETFs
3. Government and Corporate Bonds
4. Convert cash into other currencies


And now I understand a bit better why interest rates and corporate bond returns are so low in this country. To think Europe is buying pounds and strenghtening our currency. One wonders where Sterling would be without this

[dealtn]

I assume a number of major banks have been parking their money there as an alternative to crazy 40 year government bond yields.

No, interbank rates don't work that way.