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.
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