Negative interest rates and us plebs?

[stevensfo]

Not sure where to post this, so please feel free to move, while leaving a shadow etc.

Like many of you, I keep a cash pile in reserve, and have been slowly building up a ladder of fixed term (mainly 1 year) savings accounts as a buffer/emergency fund etc.

I'm totally confused about this negative interest rate business. Most people would have just kept their cash under the mattress etc, but times are changing, and we're supposed to use those few remaining charity shops on our high street that are called 'banks'.

Is there anything to worry about? Should we stick with the banks or keep cash hidden at home as was done until quite recently. i.e. will they have the cheek to charge people for giving them money?

Steve

[dealtn]

Is there anything to worry about? Should we stick with the banks or keep cash hidden at home as was done until quite recently. i.e. will they have the cheek to charge people for giving them money?

Steve

Why would it be a cheek for banks to apply negative interest rates? It would be a commercial decision whether to subsidise some/all account holders and depositors and leave a zero or positive rate of interest.

We aren't at a negative policy rate in the UK at the moment, and it might never happen. It is the case in Europe, though, and negative interest rates are applied there by a number of banks, affecting their customers.

[MaraMan]

There are always premium bonds if you havent used your allowance.

I am wondering what the effect will be on tracker mortgages. I managed to pick one up at 0.3% above base, does it go to zero if it's more than -0.3%?
Or do they pay me?

MM

[dealtn]

There are always premium bonds if you havent used your allowance.

I am wondering what the effect will be on tracker mortgages. I managed to pick one up at 0.3% above base, does it go to zero? Or do they pay me?

MM

They pay you!

Well at least they did for me. It will probably be down to the individual terms agreed between you.

I had a base rate tracker mortgage with a "teaser rate" for 2 years of Base Rate minus 0.53%. At the time I guess no one saw base rate falling as far as 0.50%. I phoned them up (cheekily) to ask them to set up a direct debit so I could collect from them. It was agreed that they would keep the existing Direct Debit between us but the payments would reduce to £0-00, with the overpayment being used to reduce my outstanding balance as this would be within the no penalty 10% capital repayments limit within the mortgage terms.

Still have the mortgage, although the teaser rate has long since expired.

[stevensfo]

Is there anything to worry about? Should we stick with the banks or keep cash hidden at home as was done until quite recently. i.e. will they have the cheek to charge people for giving them money?

Steve

Why would it be a cheek for banks to apply negative interest rates? It would be a commercial decision whether to subsidise some/all account holders and depositors and leave a zero or positive rate of interest.

We aren't at a negative policy rate in the UK at the moment, and it might never happen. It is the case in Europe, though, and negative interest rates are applied there by a number of banks, affecting their customers.

This is what I don't understand. It would be a commercial decision whether to subsidise some/all account holders and depositors and leave a zero or positive rate of interest.

But surely, the bank has YOUR money. They run credit cards with ridiculous rates of interest. Where does the 'subsidise' bit come in? So surely, we should all withdraw our money? In the past, we paid our bills by going to the 'leccy shop, Rumbelows, gas shop etc? Many, many, years ago I had an uncle who used to keep eye-watering amount of cash in his safe because he never trusted the banks. Are we going back there?

It wouldn't be that bad. I still remember when, apart from mortgages, we seemed to survive quite well without a million banks.

Steve

[GoSeigen]

Not sure where to post this, so please feel free to move, while leaving a shadow etc.

Like many of you, I keep a cash pile in reserve, and have been slowly building up a ladder of fixed term (mainly 1 year) savings accounts as a buffer/emergency fund etc.

I'm totally confused about this negative interest rate business. Most people would have just kept their cash under the mattress etc, but times are changing, and we're supposed to use those few remaining charity shops on our high street that are called 'banks'.

Is there anything to worry about? Should we stick with the banks or keep cash hidden at home as was done until quite recently. i.e. will they have the cheek to charge people for giving them money?

Steve

Agree with dealtn. Very much hoping the banks will start charging for account services including deposits or withdrawal of cash. This is a natural move which will improve bank revenues. Yes it may encourage people to keep cash under the mattress, why not? It's happened before, may well happen again. Our business bank account (not in the UK) charges more than 1% to deposit cash, we currently have a couple of months' wage budget sitting in our safe.

GS

[dealtn]

Is there anything to worry about? Should we stick with the banks or keep cash hidden at home as was done until quite recently. i.e. will they have the cheek to charge people for giving them money?

Steve

Why would it be a cheek for banks to apply negative interest rates? It would be a commercial decision whether to subsidise some/all account holders and depositors and leave a zero or positive rate of interest.

We aren't at a negative policy rate in the UK at the moment, and it might never happen. It is the case in Europe, though, and negative interest rates are applied there by a number of banks, affecting their customers.

This is what I don't understand. It would be a commercial decision whether to subsidise some/all account holders and depositors and leave a zero or positive rate of interest.

But surely, the bank has YOUR money. They run credit cards with ridiculous rates of interest. Where does the 'subsidise' bit come in? So surely, we should all withdraw our money? In the past, we paid our bills by going to the 'leccy shop, Rumbelows, gas shop etc? Many, many, years ago I had an uncle who used to keep eye-watering amount of cash in his safe because he never trusted the banks. Are we going back there?

It wouldn't be that bad. I still remember when, apart from mortgages, we seemed to survive quite well without a million banks.

Steve

The bank has your money, and is providing a no cost service to you for looking after it. As you say if you didn't want it in a bank, and had to store it in a safe, or security deposit box, that would come with costs attached to it.

If the bank wanted to lend you money, or expressed the other way, you wanted to borrow from it, then they will be charging you interest as there is a credit risk, and partly the size of that will be determined by whether you provide any security or not.

Feel free to approach a bank and negotiate an interest rate to reflect their credit risk to you, and to provide any security on your deposit. Banks are able to operate quite freely without your "uncompetitive" loan, when they can access alternative monies at (close to) base rate.

Banks have been subsidising, particularly current account holders, for many years with free banking and low/no interest. With policy rate falling that is also occurring with savings accounts now. Across Europe where "free banking" isn't the norm, and with policy rate even lower than here, there are plenty of banks, and accounts, with negative interest rates. no doubt some customers are withdrawing some cash and holding/storing it as you suggest. (The authorities would prefer it if they spent it though, of course).

[scrumpyjack]

Well it isn't going to happen for at least 6 months as that is how long the BoE has given the banks to make sure their computer systems can handle it IF it is introduced.

Given the past long term history of our currency, weak and more subject to inflation than other major currencies, I can't see it happening. An uptick in inflation seems more likely. But it is not impossible that it happens at some point.

[stevensfo]

Why would it be a cheek for banks to apply negative interest rates? It would be a commercial decision whether to subsidise some/all account holders and depositors and leave a zero or positive rate of interest.

We aren't at a negative policy rate in the UK at the moment, and it might never happen. It is the case in Europe, though, and negative interest rates are applied there by a number of banks, affecting their customers.

This is what I don't understand. It would be a commercial decision whether to subsidise some/all account holders and depositors and leave a zero or positive rate of interest.

But surely, the bank has YOUR money. They run credit cards with ridiculous rates of interest. Where does the 'subsidise' bit come in? So surely, we should all withdraw our money? In the past, we paid our bills by going to the 'leccy shop, Rumbelows, gas shop etc? Many, many, years ago I had an uncle who used to keep eye-watering amount of cash in his safe because he never trusted the banks. Are we going back there?

It wouldn't be that bad. I still remember when, apart from mortgages, we seemed to survive quite well without a million banks.

Steve

The bank has your money, and is providing a no cost service to you for looking after it. As you say if you didn't want it in a bank, and had to store it in a safe, or security deposit box, that would come with costs attached to it.

If the bank wanted to lend you money, or expressed the other way, you wanted to borrow from it, then they will be charging you interest as there is a credit risk, and partly the size of that will be determined by whether you provide any security or not.

Feel free to approach a bank and negotiate an interest rate to reflect their credit risk to you, and to provide any security on your deposit. Banks are able to operate quite freely without your "uncompetitive" loan, when they can access alternative monies at (close to) base rate.

Banks have been subsidising, particularly current account holders, for many years with free banking and low/no interest. With policy rate falling that is also occurring with savings accounts now. Across Europe where "free banking" isn't the norm, and with policy rate even lower than here, there are plenty of banks, and accounts, with negative interest rates. no doubt some customers are withdrawing some cash and holding/storing it as you suggest. (The authorities would prefer it if they spent it though, of course).

I absolutely agree, and hope that this may act as a wake-up call to the British public - though I won't hold my breath. There are far, far too many banks, and as soon as you call yourself a 'bank', it seems like you are allowed special dispensations and powers. Thanks goodness that the British are 'taking back control'. If a bank wants to issue credit cards at enormous interest rates, and then charge people for paying in their salaries (lending the banks their money), then they have to be competitive. If someone trusts a 'bank' enough to have their salary paid in, then they want a return on their investment.


Steve

[MaraMan]

There are always premium bonds if you havent used your allowance.

I am wondering what the effect will be on tracker mortgages. I managed to pick one up at 0.3% above base, does it go to zero? Or do they pay me?

MM

They pay you!

Well at least they did for me. It will probably be down to the individual terms agreed between you.

I had a base rate tracker mortgage with a "teaser rate" for 2 years of Base Rate minus 0.53%. At the time I guess no one saw base rate falling as far as 0.50%. I phoned them up (cheekily) to ask them to set up a direct debit so I could collect from them. It was agreed that they would keep the existing Direct Debit between us but the payments would reduce to £0-00, with the overpayment being used to reduce my outstanding balance as this would be within the no penalty 10% capital repayments limit within the mortgage terms.

Still have the mortgage, although the teaser rate has long since expired.

Thanks dealtn. My tracker has another 6 years to go so would be nice if we did have a period where they pay me to borrow from them, even if it does reduce the outstanding balance.

MM

[tjh290633]

There was a time, within living memory, when we paid bank charges. You could regard them as negative interest rates, if charged pro-rata to your balance. Then we moved to no charge if you kept a minimum balance in your account (like £100) and then moved on to banks paying interest on current accounts.

You pay, one way or the other, as banks are not philanthropic institutions.

TJH

[doolally]

There are always premium bonds if you havent used your allowance.
MM

If interest rates go negative and I win the £1m prize, does that mean I have to pay NS&I the £1m?

[dealtn]

There was a time, within living memory, when we paid bank charges. You could regard them as negative interest rates, if charged pro-rata to your balance. Then we moved to no charge if you kept a minimum balance in your account (like £100) and then moved on to banks paying interest on current accounts.

You pay, one way or the other, as banks are not philanthropic institutions.

TJH

A fair number of bank accounts do have bank charges. It is often only "personal" customers that benefit from this subsidy, most corporates are treated differently.

[swill453]

You pay, one way or the other, as banks are not philanthropic institutions.

Well someone pays, but not necessarily the person getting the benefits.

I keep a minimum balance in my current account, so am not foregoing interest of any consequence. It services all my needs as far as standing orders, direct debits and bank transfers. Cheques too, though I haven't written one for many years (I've paid a few in though). I use the app it's developed, and online and telephone banking.

Yet I haven't paid any charges for more than twenty years.

(I also haven't availed of its "added value" services like insurance etc.)

Scott.

[stevensfo]

There was a time, within living memory, when we paid bank charges. You could regard them as negative interest rates, if charged pro-rata to your balance. Then we moved to no charge if you kept a minimum balance in your account (like £100) and then moved on to banks paying interest on current accounts.

You pay, one way or the other, as banks are not philanthropic institutions.

TJH

A fair number of bank accounts do have bank charges. It is often only "personal" customers that benefit from this subsidy, most corporates are treated differently.

So we should start to pay to into Tesco, Lidl, Sainsbury etc?

Steve

[vrdiver]

I see a real disadvantage to be a "first mover" to negative interest rates on retail accounts. From a brand perspective, might even be better to sell that part of the business than get covered in the ensuing muck such a move would let fly!

With supermarket accounts wanting to entice customers to shop in their stores, a bank with no USP is not going to survive in the retail space for very long if it starts charging for the privilege of holding your money. Other banks that "help" you save, with automatic sweeps from your current account to their savings account seem popular with younger people. Government regulation that has made it easy to switch from one bank to another also exists, which didn't the last time banks charged for retail services in the UK, not to mention the rise of the internet and social media.

I suspect banks will still turn a profit, but just not from negative interest rates.

Plus, after Covid-19, I suspect a few financial policymakers will be looking at encouraging a bit of inflation to reduce the real government debts, rather than keep to the current low-inflation environment we have today.

VRD

[Hariseldon58]

My understanding is that in European countries with negative rates, most retail customers are not paying negative rates.

[Wuffle]

Psychological.
As an individual, you are not as financially efficient as you think you are. But nobody writes that down.
You will have tat lying around that you paid for that you never use.
You can just see this on a statement and it irks.

W.

[GoSeigen]

There are far, far too many banks, and as soon as you call yourself a 'bank', it seems like you are allowed special dispensations and powers.

Wow. That's just about the opposite view to the one regularly heard here, that the banks are subject to ridiculous levels of control which mean they will never make a decent profit again.

Thanks goodness that the British are 'taking back control'.

If that's an oblique reference to the B word, well, we just gave away a huge part of our influence in the world and terminated the meaning of "British" as it was until a couple of years ago. Perhaps you meant "the English are 'taking back control'"?

If a bank wants to issue credit cards at enormous interest rates, and then charge people for paying in their salaries (lending the banks their money), then they have to be competitive. If someone trusts a 'bank' enough to have their salary paid in, then they want a return on their investment.

It's an arm's length business transaction. Both parties are free to do what they want. They might not get what they want though if they won't pay the going rate.

GS

[scrumpyjack]

One effect of negative rates may be to push stock markets higher. Companies will be paying less interest on their borrowings and the current value of future earnings is higher. The relative attraction of equities paying dividends vs cash with no return is another factor.

I stress 'may', as markets have a habit of doing the unexpected!