By now you’ve probably heard of Negative Interest Rates, but you may not have thought it out. So, we’ll share an opinion or two.
Imagine a time when you deposit $1,000 in your bank. One year later, you get a statement saying you now have $9,990. Seems the bank skimmed off your savings via negative interest rates. They charged YOU to take your money and lend YOUR money to someone else at 3…5…6% interest or more.
My first thought years ago when I first heard of Negative interest rates was, “Isn’t this like the Mafia making you pay protection money?” You pay a bank to hold your money. Really?
With negative interest rates, banks charge you interest to keep your cash with them, rather than paying you interest. The result of Negative interest rates still has a Mafia feeling about it.
Let’s think ahead on that—
Now, if anyone who’s a reader of mine would like to send me a million dollars to hold for them, I’ll be glad for you to PAY ME negative interest rates to let me hold it. See how dumb that is?
Another negative interest rate scenario: Let’s say you have $10,000 in emergency money. You can put that money in the bank and pay them to hold it. Or you can put it “under your mattress” so to speak and you’d still have the full $10,000 ten years from now. But, you probably will have lost lots of buying power to inflation either way.
Who Dreamed Up Not Paying Me Interest on CDs or Bank Savings?
Only a Bank accountant, a Central Banker, or some other idiot would dream it Negative Interest Rates. I’m told the idea behind negative interest rates on savings is to encourage people to spend. (That’s never been an American problem before.)
If savers have to pay for their money to be stored, ideally they’ll be more likely to spend it instead of save it. They’ll also rush out and build larger homes with 3% mortgages and Zero interest auto loans. That part works out for borrowers, but as a save we’d really like to see 6-7% Bank CDs again.
What’s more concerning is what negative interest rates signal. The idea that some investors have become so risk averse that they’re willing to pay fees to a bank to store money rather than risk holding a Bond, a traditional safe-haven investment. That certainly suggests a bleak outlook for Bonds and the global economy.
Here’s How We Arrived at Negative Interest Rates
- Interest rates have been historically low since the 2008 financial crisis.
- Central banks turned to interest-rate cuts as their first line of defense.
- Low to negative interest rates were meant as a short-term remedy, but have become the norm over the decade.
- Now, about $16 trillion worth of the global debt has negative yields.
Are Negative Interest Rates really working? Look no further than Japan and countries across Europe to see if the idea is successful in keeping them afloat in the face of the CoronaVirus pandemic. Only time will tell