What are you all planning to do when interest rates turn negative?

ProDave

So we are at the end of the present "boom" sitting on the edge of the next recession, and there is the B word as well.

The last "boom" was so weak, the BOE never did manage to restore interest rates back to normal levels, having remained at historically low levels for 10 years now.

In a recession, interest rates are the first thing to drop to try and stimulate growth. But we can't cut them because they are barely above 0 already?

Oh yes we can. They can go negative. Then we have a whole new world to get used to.

Denmark is there already these are mortgage rates:

30 year +0.5%
20 year 0.0%
10 year -0.5%

So a 10 year mortgage PAYS you 0.5% interest. A 20 year mortgage is absolutely free, and a 30 year mortgage you pay 0.5%

These are FIXED rates for the duration. The long period of the fix suggests they are not expecting rates to get back to what we might have know as normal, for some considerable time.

So if rates go negative and borrowers are PAID, then it must follow that savers will be CHARGED to keep their money in the bank.

I can only see that going one way. Withdraw your savings as cash and keep it in a safe. So that's an immediate run on the banks then?

This is of particular interest to me as if all goes to plan in a year or 2 we will have a substantial sum to invest / live from and the prospect of no interest, having to pay interest to keep it safe, or have an uncomfortably large bundle of notes in a safe is not a pleasant prospect.

Thrugelmir

ProDave wrote: »

So if rates go negative and borrowers are PAID, then it must follow that savers will be CHARGED to keep their money in the bank.

Corporate Euro have been charged for some time. UK public sector bank accounts were switched to RBS for this very reason.

German Bund yields are negative.

Shows how poor the underlying economy must be. As German economic performance falters.

veryintrigued

I'll be selling flying pigs.

A_T

Most posters here are more worried about interest rates rising.

Thrugelmir

A_T wrote: »

Most posters here are more worried about interest rates rising.

Times change. Poor economic growth may result in lower wage growth. Equally as painfull in the longer term.

masonic

ProDave wrote: »

I can only see that going one way. Withdraw your savings as cash and keep it in a safe. So that's an immediate run on the banks then?

It's far more likely we will see further devaluation of the pound, which will impact those holding cash either physically or in banks.

Alistair31

Re-mortgage

Uxb1

ProDave wrote: »

So if rates go negative and borrowers are PAID, then it must follow that savers will be CHARGED to keep their money in the bank.

I can only see that going one way. Withdraw your savings as cash and keep it in a safe. So that's an immediate run on the banks then?

Why is why as I've said for several years on various sub-forums on here they are so desperate for us to go fully cashless.
Once you cannot withdraw to cash, negative retail interest rates as a way of enforcing spending by those with money and the same to enforce borrowing by those without becomes a practical monetary policy to follow to "stimulate" the economy.

ProDave

The issue for someone like me, hoping to retire in 4 years or so, with reasonable, but not brilliant pension provision, and hopefully a substantial pot of cash.

The plan was to invest / spend that cash gradually to top up the pension. I don't want a monetary policy that is trying it's hardest to force me to spend it quickly to prop up a failing economy.

I have spent the last 10 years since the financial crash hoping / waiting for interest rates to return to something like most of us used to know as "normal" so my retirement pot has a hope of working for me, but staring into the predictions makes me feel very worried.

It would be doable if we get negative interest rates to stash say £10K savings in a safe to avoid paying interest on it. But £250K?

masonic

ProDave wrote: »

It would be doable if we get negative interest rates to stash say £10K savings in a safe to avoid paying interest on it. But £250K?

Do you really need to keep £250k in cash? Cash is not a asset class for money that isn't going to be spent in the short term. Money that is going to be spent in the short term could be divided up into 1, 2, 3 year fixed rate accounts, which will not be affected by interest rate changes and could cover your spending needs, but these may still lose money due to inflation. Inflation is going to be your biggest enemy. If you were to execute your plan and hold £250k in cash, inflation at 3% over 10 years would reduce its spending power by over 25%. You really need to be looking towards holding assets that will retain their value over the long term.

A_T

Thrugelmir wrote: »

Times change. Poor economic growth may result in lower wage growth. Equally as painfull in the longer term.

That depends upon your individual circumstances.