Negative Interest Rates and Their Strange Effects

  • Most people know about interest rates being positive — you save money and get some extra, or you borrow and pay some extra. 
  • But did you know some central banks have experimented with negative interest rates
  • That means banks or even depositors effectively pay to keep money in certain accounts, instead of earning interest. 

Why would this happen? 

  • When an economy is struggling and inflation is very low or negative (deflation), central banks try to encourage spending and investment by making borrowing cheap — so cheap that banks get charged for hoarding money. 
  • This is to push banks to lend more and consumers to spend, rather than save. 


Strange effects:
  • Savers lose money just by keeping it in the bank.
  • Some banks might charge fees for cash deposits.
  • Investors might buy riskier assets to avoid negative yields.
  • Pension funds and insurance companies struggle to meet their future payout goals with low or negative returns.
  • It can even cause people to withdraw and hoard physical cash, to avoid negative interest.
Example: 


The European Central Bank and Bank of Japan have used negative interest rates in the last decade. 

Did you know? 


In some cases, short-term government bonds actually had negative yields — meaning investors paid the government to hold their money, betting that safety was more important than returns in uncertain times.