If interest rated drop to zero how will we be affected?

qwert10

Just wondering if interest rates go to  zero or worse what is likely to happen to savings, loans etc? May be an unknown scenario I suppose.

Thrugelmir

Savers may be charged interest on their deposits. Borrowers will continue to incur interest charges. As lenders need to generate a margin to trade profitability. 

Ballard

I suspect that in the short term banks would probably take the hit on small positive balances and not charge their customers but if negative rates were to be in place for some time then they'd need to look at either charging interest or adding a fee. I don't see a time when loan rates for retail customers would drop below zero.

jonesMUFCforever

.....................What about base rate linked loans such as my mortgage?

daveyjp

jonesMUFCforever said:

.....................What about base rate linked loans such as my mortgage?

Depends on the terms of the mortgage.  Some have a link to base i.e. x% above base, but also a collar rate i.e. not less than y%.

Shakin_Steve

daveyjp said:

jonesMUFCforever said:

.....................What about base rate linked loans such as my mortgage?

Depends on the terms of the mortgage.  Some have a link to base i.e. x% above base, but also a collar rate i.e. not less than y%.

Yes. My five year fixed has an interest rate of base rate+3.5% when the fix ends. So, I guess, if rates went -0.5% then it would be 3%.

eskbanker

qwert10 said:

Just wondering if interest rates go to  zero or worse what is likely to happen to savings, loans etc? May be an unknown scenario I suppose.

It's not really an unknown scenario in terms of how often it's discussed on the forum - https://forums.moneysavingexpert.com/discussion/6146822/negative-interest-rates/p1 is one such thread, that includes links to various others before it....

Ballard

Shakin_Steve said:

daveyjp said:

jonesMUFCforever said:

.....................What about base rate linked loans such as my mortgage?

Depends on the terms of the mortgage.  Some have a link to base i.e. x% above base, but also a collar rate i.e. not less than y%.

Yes. My five year fixed has an interest rate of base rate+3.5% when the fix ends. So, I guess, if rates went -0.5% then it would be 3%.

Possibly but it could have a floor on the base rate of zero meaning that the lowest rate you could be charged is 3.5%. You’d need to check your paperwork. 

badger09

jeepjunkie said:

At the end of the day your savings are still safe in a bank account. You could do other stuff like pay down debt quicker or contribute to a pension for the tax uplift. Cheers

Neither of those options are available to many of us. Not complaining, just stating a fact