27/02/2013

Negative Interest Rates

We've had a time of record low interest rates, 0.5%. Many experts have said, "Interest rates can't go much lower." And I always thought, "Well, they can go 0.5% lower, genius!" But it turns out I was wrong. The Bank of England has been thinking about negative interest rates. Or "disinterest rates" as I'm trying to trade mark.

The Deputy Governor Paul Tucker said the idea of charging high street banks to store money centrally, rather than paying them interest, should be explored as a way of easing the flow of credit to the stagnant economy.

This is great. This is the first step towards a world where having money costs you, and not having money doesn't. And that's great for me, because I don't have any. Although if I did get some money I wouldn't have enough money to be able to afford the cost of having money. Oh, this economics lark is harder than it looks.

Tucker said: "I hope we will think about whether there are constraints to setting negative interest rates." Constraints such as law, policies and if they have the "-" character on the signs.

The plan is, if they have a negative interest rate then it would cost banks money to store funds. It would then encourage banks to lend money more, to avoid the costs. And why not? Lending lots and lots of money hasn't caused a global crisis for at least 4 years.

The worry is that such a move would lower the rates the banks pay savers, rates which are often already near zero. And the banks could even start to charge customers.

When I was growing up, if you had money in the bank the bank paid you. And now we've reversed roles. Which is great. Because now, all I need to do it write a letter to my bank and I can charge them £12 for my admin costs.

>Read the source story

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