Banks asked to prepare for negative interest rates

London_Boro said:
What exactly would that mean if I wanted to borrow more on my mortgage to do some home improvements?

I guess it just means that interest rates would be practically zero, right? They're already between 1%-2%?
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The Bank of England rate is 0.1%. Interest rates on offer are at 1% - 2%. Not a lot of recent reductions have been passed on.
 
FatCat said:
Basically the banks will legally have to pay you to borrow money. The reason being they will be charging you to deposit money as it will cost them to do so.

my Mrs has being working on this for weeks and I said to her that it’s nonsense as surely nobody would expect a negative interest rate. Whether it’s in the contract terms or not surely it’s implicit that that would never happen.She countered with yes it would seem implicit but as we will have to charge for deposits as it will cost us to take them then we have to treat the customers fairly - we can’t have it both ways.

they have been talking about it for months and still have not come up with a solution!!
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They don’t legally have to pay you to borrow
 
Andy_W said:
I’m no expert, but a managed portfolio does about 10%, even more if you take on a bit more risk.

You have to be able to accept that some years you may drop, but over time it will hammer savings.

Pensions are extremely efficient too, especially for higher rate tax payers, because of the tax breaks, but I wouldn’t want to wait until 55 to get my hands on the cash (at the earliest).
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I should have stated I meant bank account savings, obviously there are other ways to yield a better % interest.
 
FatCat said:
It’s madness

i don’t know then, but they have been spending a lot of time discussing it so it’s not something that’s really simple to resolve.
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I think they’ll have to keep saving rates at 0.1% as the need to balance what they pay to savers vs what the charge their borrowers.
If banks can get money off they Bank of England at cheap rates or negative they may pass it on to borrowers while having a plus rate of savings.

I could be wrong but that’s my basic understanding of how it works
 
I would have thought that it would benefit government borrowing by them paying a reduced interest rate, allowing for government debt to be paid back over a longer period.
For the public, I dont think it would benefit them at all. Most tracker mortgages have a cap for very low rates, if not you would pay inflated product fees, the banks are not going to lose out. Savings rates are negligible at best, the banks will not risk you withdrawing all of your savings in cash, as this would affect their cash flow and their ability to lend.
To sum it up, in principle you may be able to borrow money at a very low interest rate, however the supply and availability to funds will be very difficult. So they banks will only lend to very good credit risks and you will have to pay inflated fees for those services.
 
My understanding is that the low interest rate, or negative does 2 things. There is no point a bank holding on to large cash reserves, so it encourages them to lend money to stimulate the economy. Secondly, there is little point it savers hoarding money in a savings account so it encourages them to spend also, stimulating the economy.

Banks wiln not charge you to deposit money, nor will they pay you to lend money. It is largely a massage of the economy to get people spending rather than saving.
 
Smog in Wilts said:
To sum it up, in principle you may be able to borrow money at a very low interest rate, however the supply and availability to funds will be very difficult. So they banks will only lend to very good credit risks and you will have to pay inflated fees for those services.
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There won't be any problem with money supply. There's no point in keeping it in deposit accounts, and the banks will only want to deposit the minimum they are obliged to at the Bank of England.

I'd expect businesses and consumers with good track records will have access to gobs and gobs of money at low interest rates.

The banks' only real way of making money is to identify consumers who haven't got good credit histories and lend them money at slightly higher rates.

A good old credit bonanza for people who were round in the 1970s.
 
Negative interest rates - the banks will theoretically be able to charge you to deposit money. They may well not do so on small retail accounts, but it's a possibility. (They have them in Germany already. Many are for deposits over €50k, but I think a few banks charge on small deposits too).
 
I would imagine cash will flow into the stock and property markets. Both will then create a bubble in around five years and then go pop again.
 
Soutra said:
There won't be any problem with money supply. There's no point in keeping it in deposit accounts, and the banks will only want to deposit the minimum they are obliged to at the Bank of England.

I'd expect businesses and consumers with good track records will have access to gobs and gobs of money at low interest rates.

The banks' only real way of making money is to identify consumers who haven't got good credit histories and lend them money at slightly higher rates.

A good old credit bonanza for people who were round in the 1970s.
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Soutra, I understand your points, however I think that there is another view of the issues.
It depends upon the credit products that you are considering. Credit cards and overdrafts make money from people who incurr fees and interest by not paying off their balances, however these are not usually tracking Bof E interest rates. Mortgages, loans and savings are very much rate dependant.
Certainly the Building Society model depends on lending borrowers money from the Savers balances, they also have to maintain liquid assets to cover overdraft and credit card balances. They were not able to raise money in the way that banks used to be able to do. So will set rates at a level that allows them to keep in business. They will do this by charging product fees on mortgages etc. In the old days they also got customers to sign up for PPI (but lets not go into this).
The banks will be having to raise their bad debt provision due to where we are in the economic cycle. We all know the economy is being supported by furlough, when this is withdrawn I would expect their to be a lot of job losses and therefore delinquency in the credit market. I would be sure that the banks wont have a lot of money on deposit. I hope they have learned their lessons from the credit crunch.
I really dont see that this is a way of stimulating spending to kick start the economy, I believe it is to help the country service its debt at the lowest rate it can get away with. In the past the economists used inflation to reduce debts, however I believe that many people are too sharp to let them get away with this.
 
Colgates_shaving_foam said:
I'm no expert but my understanding is that the lower the rate the better it is for borrowing and the worse it is for saving.

So I guess it would be good for getting a mortgage.

I suppose a downside could be that banks get spooked and want to hoard rather than lend so they make the borrowing criteria more difficult?
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The idea is to charge the banks for not lending so that means they are incentivised to lend.
 
Laughing said:
My understanding is that the low interest rate, or negative does 2 things. There is no point a bank holding on to large cash reserves, so it encourages them to lend money to stimulate the economy. Secondly, there is little point it savers hoarding money in a savings account so it encourages them to spend also, stimulating the economy.

Banks wiln not charge you to deposit money, nor will they pay you to lend money. It is largely a massage of the economy to get people spending rather than saving.
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Sorry - you put it much better
 
We may ned up paying to keep our money in bank accounts, that has been the way in Germany now for a few years. Encourages people to invest and as others said makes it cheaer for the country to borrow money. A time to invest
 
Smog in Wilts said:
I really dont see that this is a way of stimulating spending to kick start the economy, I believe it is to help the country service its debt at the lowest rate it can get away with. In the past the economists used inflation to reduce debts, however I believe that many people are too sharp to let them get away with this.
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Well at least in theory, this is a great time to start or expand a business. Cheap loans, lots of good people in the labour market, business premises empty everywhere, people running into trouble importing from Europe, no point in saving money in deposit accounts.

The disappointing thing from my perspective is that to so many people in England, opening a business means opening a shop. Retail is on its knees and there's a limit to the number of coffee shops a town needs. Where are the IT entrepreneurs in England? Edinburgh is chock full of them.
 
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