NEGATIVE INTEREST RATES

coachman12

John464 said:

Sailtheworld said:

Stick with NS&I. It's unlikely that any financial organisation within a government orbit is going to have the IT and processes in place to introduce negative rates.

Just because they don't have the systems in place doesn't stop them doing it

Quite right. I fully agree. It has just happened already in one major Danish Bank where , with a negative interest rate, savers have faced charges on their savings accounts. It is happening in the Eurozone and Japan to some extent. It has happened in Switzerland for some years, regardless of the economic climate (for high amount savings).
My own view is that BoE negative interest rates may well be on the way as the only way to curb savings and get the economy moving during this time of unprecedented crisis (and I agree with the economic theory). BUT I do not think the High Street Banks will allow their savings rates to follow into the realms of negativity ( though 0% would probably be their option ) because they would be too fearful of mass withdrawal of savings ( almost the clichéd "run on the bank" ) so that people can keep their savings at home rather than pay a bank or any financial institution to charge them for keeping those savings.
Riskier measures for savers may well be on the way unless they are content just to keep savings in 0% accounts ( which I think many folk will do). But nobody knows yet where this fascinating possibility may take us.

retiree

Albermarle said:

It maybe the free banking model which the UK current account customer enjoys that maybe comes under ( renewed) pressure.
So no negative interest but introduction of charges for running the account , like in most other countries, 

Current accounts were not always free in the UK. I remember quarterly charges when I first opened my current account with Barclays in 1965.

RG2015

DireEmblem said:

onomatopoeia99 said:

If the base rate goes to -0.25%, theoretically my mortgage rate should go to -0.01%, although I expect there is small print that stops the building society from having to pay me interest on my mortgage.  

How on earth do you have a 0.24% mortgage?

The implication is that their mortgage rate is base rate plus 0.24% so currently 0.10% plus 0.24% equals 0.34%

Then if base rate is set at -0.25%, the calculation is -0.25% plus 0.24% equals -0.01%

Aretnap

DireEmblem said:

onomatopoeia99 said:

If the base rate goes to -0.25%, theoretically my mortgage rate should go to -0.01%, although I expect there is small print that stops the building society from having to pay me interest on my mortgage.  

How on earth do you have a 0.24% mortgage?

Lifetime trackers at only slightly above base rate were fairly common in the days before the financial crisis. Woolwich offered one at base rate + 0.19%; some other banks offered them at not much more. A few lucky people still have them.

There were shorter term trackers at well below base rate which arguably should have gone negative when the base rate dropped to 0.5%, though in practice the banks didn't actually pay interest to mortgage holders. I vaguely recall the FCA or somesuch saying that it was unreasonable to expect a bank to pay you for the privilege of lending you money, and a lower limit of 0% on the interest rate could be regarded as an implied term even if not specifically written into the contract. More modern trackers do tend to have an explicit clause setting a lower limit on the interest rate.

(When I moved a few years ago I gave up my own base rate+1% tracker to take out what seemed like a bargain 10 year fix at 2.49%. Needless to say, I now feel rather silly.)

wiseonesomeofthetime

Aretnap said:

(When I moved a few years ago I gave up my own base rate+1% tracker to take out what seemed like a bargain 10 year fix at 2.49%. Needless to say, I now feel rather silly.)

In 2009, I took out a 7 year fix at 5.39%

Felt very silly just months later as rates dropped, and never reached anywhere near that rate in the seven years that followed!

rothers

DireEmblem said:

onomatopoeia99 said:

If the base rate goes to -0.25%, theoretically my mortgage rate should go to -0.01%, although I expect there is small print that stops the building society from having to pay me interest on my mortgage.  

How on earth do you have a 0.24% mortgage?

I have a lifetime tracker at 0.17% above the BoE base rate which I got from the Woolwich in 2007. 

msallen

I'm on 0.99% above base, which whilst nowhere near some of the best that were once available, I'm very happy with !

Sibbers123

Negative interest rates are a terrible idea. There will be very little profit for banks loaning out funds which will tighten the market once again. Such short-termism.

Banks cannot pass these negative interest rates on to savers as there will be a run on the banks. All businesses and individuals with large cash balances will transfer their money overseas, reducing the strength of GBP. It will also cause inflation will rise at a time when when unemployment rates are expected to reach record levels globally.

The only positive of negative interest rates is that the country's debts will reduce. The financial markets are a mess. The only reason the stock markets haven't crashed is because there is no safe haven for your money at the moment (with the exception of gold maybe).

A small reduction in interest rates will not be a magic bullet. We are in for a rough ride in 2021 and beyond.

Sailtheworld

John464 said:

Sailtheworld said:

Stick with NS&I. It's unlikely that any financial organisation within a government orbit is going to have the IT and processes in place to introduce negative rates.

Just because they don't have the systems in place doesn't stop them doing it

No, but it's a consideration. If the BoE can implement negative interest rates but financial organisations can't pass them on to encourage savers to spend or take more risk it rather defeats the objective. 

coachman12

Sibbers123 said:

Negative interest rates are a terrible idea. There will be very little profit for banks loaning out funds which will tighten the market once again. Such short-termism.

Banks cannot pass these negative interest rates on to savers as there will be a run on the banks. All businesses and individuals with large cash balances will transfer their money overseas, reducing the strength of GBP. It will also cause inflation will rise at a time when when unemployment rates are expected to reach record levels globally.

The only positive of negative interest rates is that the country's debts will reduce. The financial markets are a mess. The only reason the stock markets haven't crashed is because there is no safe haven for your money at the moment (with the exception of gold maybe).

A small reduction in interest rates will not be a magic bullet. We are in for a rough ride in 2021 and beyond.

I provided my overall assessment a few posts back on this thread and I repeat that BoE negative rates may well be on the way and that any Chancellor worth his salt would be incompetent if he did not take such action ( or at least carefully consider it ) during this current emergency . It makes absolutely sound economic sense. The BoE's primary job, above all else, is to keep prices across the economy rising steadily every year. The Bank's inflation target is set at 2% by Govt and in the present climate it is failing to be met.
If inflation remains low for too long, bosses start factoring that into pay reviews. This can then dampen consumer confidence and spending. 

Sweden, Switzerland, Japan and the 19 nations of the eurozone all took interest rates below zero. In Switzerland, negative interest rates have also helped to discourage investors from pouring money into the country during times of uncertainty.

In the UK we must stop people saving and get them spending---it is essential if we are to be able to follow scientific advice and stop mass pandemic deaths. And to anyone like me, who thinks anti-Covid measures should be made more stringent, it is doubly necessary that the economy is kept as healthy as is possible ( which is not very healthy but as good as we can manage) by going down the path of BoE interest negativity.

Of course, it is all a lot more complex than that , but the above is an adequate summary IMO.

The difficulty comes in guarding High Street Banks and financial institutions from getting into a mess. Said banks could be paying people to take out loans, they could see savings accounts being emptied ( that's why I think BoE negative rates will not be passed on in full to savers by the banks) and the overall fragility of the banking sector must be protected. But that is for another discussion elsewhere perhaps.

But overall, we must head towards BoE negative interest rate IMO and just as a matter of simple economics.