The Dummies guide to negative interest rates ?

In the news today banks have been given 6 months to prepare for negative interest rates ? -

I don't have a mortgage , but do have deferred pensions, and an NHS pension that I can take in a couple of years ? ...and Savings ?
 

Cycleops

Legendary Member
Location
Accra, Ghana
I think it will only affect people who have savings at the major banks. You’ll have to pay them to keep your money.
I don’t think think it will happen, bank base rate is still 0.1%. Banks will be encouraged to lend money to get the economy moving.
 

Milkfloat

An Peanut
Location
Midlands
In the news today banks have been given 6 months to prepare for negative interest rates ? -

I don't have a mortgage , but do have deferred pensions, and an NHS pension that I can take in a couple of years ? ...and Savings ?
Well you did have :laugh:

Negative interest rates can actually be quite good for you. Basically they force people/institutions to make their savings work harder and invest rather than save. That should increase your pension depending on how they are invested. Your savings on the other hand could suffer depending what the banks do - to be honest they won't want to start charging the average Joe to keep their money. Now - it does make the pound a little crappy which in turn makes it more expensive for you to buy goods in the UK, but then again Brexit has done that too.

Personally - the warnings have been there for a while so I intend to move more savings into another ISA, but buying foreign stocks rather than UK.
 

Archie_tect

De Skieven Architek... aka Penfold + Horace
Location
Northumberland
Banks have been encouraged to lend money at zero % for the first year since the first lockdown, that's certainly been my experience with NatWest - I could've taken £50,000 if I'd been so inclined- but no-one wants to take out a business loan when their businesses are locked down.
 
Location
Kent Coast
Banks are being put on notice that negative interest rates Might happen. They will need to ensure that their computers and accounting systems can cope, that they have procedures in place to notify customers of the "charges" and so on.
But, think it through......
Bank of England sets a negative rate. High Street banks apply it. Loads of customers show up, demanding to withdraw their savings in cash. Banks run out of cash. There is a "run" on the banks and consumer confidence is wrecked.
My thought, for what it's worth, is that charges will only actually apy to business accounts holding cash, who can "afford" to recoup losses from their customers, or absorb them as a "business cost". If you try to charge personal account holders, there must surely be some minimum limit below which it is not economical for the bank to charge, and customers will just farm out their money to loads of different financial institutions, to keep each one below the charging threshold.
Of course, interest rates might actually go up in the meantime!
 

Drago

Flouncing Nobber
Location
Poshshire
I think its unlikely to happen. The BoE is wise and prudent to raise awareness of the - remote - possibility of neharive rates in order to allow institutions to make the necessary preparations. However, recent projections regarding economic recovery make the scenario unlikely. We shall see, but im not unduly worried and I have 6 figure sums stashed across multiole accounts.
 

nickyboy

Norven Mankey
It's a systems awareness issue. Presumably there will be some products the bank's offer that may not have countenanced the possibility of negative rates in their programs

It would be funny if base rates fell so far -ve that base rate tracker mortgages went -ve too, meaning the lender had to pay the borrower. No gonna happen sadly
 

byegad

Legendary Member
Location
NE England
I think it will only affect people who have savings at the major banks. You’ll have to pay them to keep your money.
I don’t think think it will happen, bank base rate is still 0.1%. Banks will be encouraged to lend money to get the economy moving.
Given that our cash savings are fairly modest, the day we go -ve interest is the day the two accounts are closed and the safe gets filled!
 

bikingdad90

Veteran
If negative interest rates happen then I could see a run on people ending fixed rate mortgages early and then locking into 10/20 years rates with incredibly low rates.
The other downside is that first time buyers would be frozen out the market as 90/95% mortgages would disappear off the market entirely. Even 85% mortgages might too!
 

SpokeyDokey

64 and a little bit.
Moderator
BoE suggesting in the latest monetary review that the economy will rebound earlier than expected re CV vaccination program rollout.

They'll be wanting to get back to their 2% inflation target as soon as they can which will be fueled by the uptick in all the billions (£125B according to some estimates) that has been 'saved' within the economy during the pandemic just waiting to be spent.

Says to me that interest rates will rise sooner than forecasts published last year suggested.

https://www.bankofengland.co.uk/monetary-policy-report/2021/february-2021
 

srw

It's a bit more complicated than that...
This thread is confusing a number of different issues. Interest rates vary depending on who is lending to whom, and for how long.

The BoE only has direct control of one interest rate - the rate it lends to banks for one day. That's its main function. All other interest rates are set by negotations between lenders and borrowers. What the BoE has told the banks is that they should prepare their systems to allow for the possibility that their own interest rate could go negative - it's currently 0.1%. Negative interest rates already exist in the UK - the price of government debt for short periods implies a negative interest rate.

And if you allow for inflation, interest rates have been negative since the financial crisis. You are already paying for the privilege of holding any kind of bank account - because the interest rate you're getting (0.2% if you're lucky) is well below the rate of inflation. In the UK, unlike other countries, banks don't tend to charge explicitly for bank accounts or credit cards, but you can be very sure that they are profitable.

Whatever the Bank of England does, it's vanishingly unlikely that they will translate into negative mortgage rates. Lenders want some kind of return for the risk they're taking by lending to you, and without a positive interest rate that won't happen. It's quite likely that sooner or later you will see explicit charges for all kinds of current and savings accounts.

As for the future direction of interest rates, predicting them is a mug's game.
 

nickyboy

Norven Mankey
Interesting that the US 30 year bond yield has just increased to 2% so there is definitely an expectation there that inflation is coming (and this interest rates), largely down to the QE of the past 12 months. You wonder how different the UK may (or may not) be
 

SkipdiverJohn

Veteran
Location
London
nickyboy said:
Interesting that the US 30 year bond yield has just increased to 2% so there is definitely an expectation there that inflation is coming
A negative reaction to Biden, and the perceived risk that he will cause inflation. No-one wants to loan out their money for 30 years at a loss. I'm surprised the yield isn't even higher, TBH.
 
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