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

Thrugelmir

A_T wrote: »

That depends upon your individual circumstances.

Maybe so. Lower disposable income ripples out through the economy. Remember PPI refunds have given a huge boost in recent years to the UK service industries.

Thrugelmir

ProDave wrote: »

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.

QE and low interest rates were only ever the initial step. Has taken the past 10 years for the banks to address their issues. Though many major European Banks seem to be behind both the US and UK ones. In the same time period the Chinese have continued to exert a growing influence on world affairs. Only matter of time before they knock the US off the top spot.

aldershot

The world is awash with cash, so it's price goes down. Real interest rates have been falling steadily for a decade, and UK IL gilt yields are now around -2.0%. $15 trillion of global bonds, including most of Europe have negative nominal yields. That amount has tripled in under a year. 10 year regular gilts yield 0.66%

If you want to hold safe assets, you're going to have to pay for the privilege. Otherwise you have to hold risky assets and hope for the best.

aldershot

ProDave wrote: »

I can only see that going one way. Withdraw your savings as cash and keep it in a safe.

That is a form of negative interest rate. You have the cost of the safe plus the risk of theft or your house burning down. If the bank charged you 5bp to keep your money safe, with a FSCS protection, you'd probably still take it. 10bp?, 15bp? where's your pain threshold?

aldershot

Uxb1 wrote: »

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.

Totally agree. Real financial repression requires breaking the zero bound.

oz0707

Can't see it myself with regards to mortgages but perhaps I'm just being ignorant. Where would all the money come from for banks to pay out 2% on all mortgages? Savers would withdraw/move funds and the money would dry up?!

Anyway i'm not looking forward to the day NS&I get in touch and tell me I owe them a million squid for holding my premium bonds!

Nellybee

What i have done for years is invest in high dividend stocks .This as given me a boost to my pension with the dividends and at the highest point i had made 21% on my money i invested .But like any investment it can go down and belive me it does .I am in it for the long haul and hold shares rather than trade.Also i have a few 5 year savings bonds the highest pays 2.67% interest over 5 years i take the interest monthly also boosting my pension .So even if interest rates go negative there are ways to avoid them.Also swings and rounabouts people with loans will benifit aswell .

Thrugelmir

oz0707 wrote: »

Where would all the money come from for banks to pay out 2% on all mortgages? Savers would withdraw/move funds and the money would dry up?!

Banks create money using what is termed fractional reserve banking.

bostonerimus

Borrowing money would be attractive, so why not refinance the mortgage. Personally I’ll be glad I locked in a min of around 4% on a deferred annuity many years ago. I’ll also look to equities to rally

edgex

Thrugelmir wrote: »

Banks create money using what is termed fractional reserve banking.

Though Basel impacts upon the amount they can create, due to the increased capital requirements
https://en.wikipedia.org/wiki/Basel_III

If depositors are charged for holding money in banks, then some funds will move.
That may be to cheaper banks, or to other savings products.
That will reduce the amount of money an individual bank can create.