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The RBS banking group has warned 1.3 million customers they could be charged negative interest rates if the Bank of England cuts base rates below zero.
The group, which includes NatWest, wrote to its business and commercial account holders about the potential changes, which mean they could lose money even when they are in credit.
The letter said: "Global interest rates remain at very low levels and in some markets are currently negative.
"Dependent on future market conditions, this could result in us charging on credit balances."
The Bank of England's base rate currently stands at the historically low rate of 0.5%, where it has been for more than seven years - and some economists believe it should be cut further to stimulate the economy.
Source: Sky News
From October 1st, the Dutch bank [ABN Amro] is adjusting its conditions to state that the bank can give negative interest rates to account holders with a business checking or -savings account, ANP reports.
Source: NL Times
(Score: 0) by Anonymous Coward on Thursday July 28 2016, @06:36PM
You are asking the right question.
Here's the simple answer: negative interest rates exist when there is more money to invest than good ideas about how to invest it.
Banks serve two functions; and both reasons are important when deciding to give them your money: in addition to lending your deposited money into productive investments and giving you back a portion of its profits in the form of interest, it's a convenience service for you to not have to keep the cash inside your mattress, not to mention cheques, credit cards, and online transactions. So when there are no productive investments where the banks can park the moneywith interest, clients can still be willing to pay to have the convenience service.
The interest rates are low because few want to pay to build factories or purchase equipment (or office buildings, or support development of new products, etc...). Basically, we need revolutionary new inventions like the steam engine, electricity or the internet to drive innovation and create new opportunities for the growth of new industries. Only then will good new investment opportunities arise, driving interest rates up again. Government's central banks like the Fed can only react to keep the inflation around 2% by adjusting the interest rates according to the state of the economy (following a rather narrow set of rules with little to no leeway); they are not the problem.
States could increase their importance in the economy with public works programs like building roads or social redistribution schemes like paid parental leave, but that is politically difficult, and the long term effects of a sustainably more present State in the economy are not entirely clear --although at current historically low interest rates and low overall government debt levels, we're passing on a great opportunity to improve the public infrastructure that would not really crowd out private investment in this context--. But that requires more taxes at the same time as more public spending, so I don't see that happening at the necessary international scale fast enough to make a difference on real interest rates.
So basically, the lack of good new ideas about what to do with money saved by individuals, corporations and sovereign funds like Saudi Arabia's and Norway's is what keeps interest rates low.
I hope this helps.
- An actual economist