Could you be charged for having money in the bank?

Could Australian banks charge for deposits and pay customers to borrow money?

negative rates

Retirees are advised to keep money in the bank for emergencies. But what if that account cost you money rather than earnt you money?

That’s the possibility being flagged by analysts after Reserve Bank of Australia (RBA) governor Phillip Lowe told an economic parliamentary hearing that it may need to cut the official cash rate to zero or below and employ some  “unconventional” methods to get the economy back on track.

The RBA held interest rates at one per cent – its lowest level in Australian history – at its last review earlier this month, but had previously cut rates in two consecutive months.

The possibility of a negative interest rate – never before experienced in Australia – cannot be ruled out.

Negative interest rates have been implemented overseas to stimulate economies, businessinsider.com reports, and raises the possibility that banks could pay customers to borrow money for the first time in history.

Mr Lowe said: “It’s possible that we end up at the zero lower bound. I think it’s unlikely, but it is possible. We are prepared to do unconventional things if the circumstances warrant it.

“When we look overseas, we see some central banks have very low interest rates and some countries have negative interest rates. In Switzerland right now, the interest rate is -0.75 per cent, in the euro area it’s -0.40 per cent and in Japan it’s -0.10. So some central banks have gone negative. That’s one possibility.”

A Danish bank is currently offering home loans at a -0.5 per cent interest rate, meaning a customer who borrowed $1 million and paid off the mortgage in 10 years would only pay the bank back $995,000.

What could negative rates mean for you?

With positive interest rates, customers are paid interest to leave their money with a bank. The bank then lends that money at a higher interest rate to borrowers to make a profit.

“As interest rates get lower, individuals receive less interest on their deposits and pay less on what they borrow,” businessinsider.com explains. “That typically leads to greater spending as mortgages and other loans become cheaper and money sitting in the bank doesn’t earn customers much at all.

“When the interest rate enters negative territory, however, the tables get flipped completely and everything gets a little topsy-turvy.

“Negative interest rates mean that money deposited with a bank can be charged interest instead of earning it. Even more radical is the fact that banks can actually pay individuals to borrow money.”

Taking a broader view, a country’s currency is weakened by negative rates, thus boosting exports – and the economy.

But have negative interest rates worked overseas?

With the exception of Sweden, which saw a modest improvement, the other economises actually worsened, says businessinsider.com, leaving the track record of negative interest rates unproven.

“I’m not thinking that … would be appropriate in Australia,” Mr Lowe told the economic parliamentary hearing. “There are some lessons, though, that we’ve drawn.”

Assistant RBA governor Christopher Kent says he believes the need for such policies in Australia is “unlikely but certainly possible” and that the RBA could still push rates as low as 0.5 per cent by early next year.

Do you have money in the bank that you expect to be earning interest? Do you have other plans to generate an income from that money?

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    COMMENTS

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    gerry
    15th Aug 2019
    10:20am
    I was happy to leave my money in the bank ,but now I,m going to spend it overseas ,dining and fornicating,back to cigars and Nuits st, George and when its all gone I,ll be back to bludge my pension and sit on the promenade as I have been doing and winking at all the belles who walk past
    Farside
    15th Aug 2019
    10:50am
    you and old mate Tanker are in sympatico. You should join forces to party like there is no tomorrow!
    AussieTuca
    15th Aug 2019
    12:07pm
    You want some company?
    gerry
    15th Aug 2019
    10:20am
    I was happy to leave my money in the bank ,but now I,m going to spend it overseas ,dining and fornicating,back to cigars and Nuits st, George and when its all gone I,ll be back to bludge my pension and sit on the promenade as I have been doing and winking at all the belles who walk past
    AutumnOz
    15th Aug 2019
    10:38am
    I cancelled a specialist doctor's appointment yesterday because over $300 had to be paid upfront before seeing the doctor.
    I do not have a spare $300 to waste, there is little interest on term deposits and share prices are expensive and come with the possibilty of the price dropping instead of rising which is something else I can't afford.
    Living on a fixed income is difficult at the best of times, it has now become extremely difficult.
    The only thing that will stimulate Australia's economy is people having enough money to spend not in dropping interest rates which only helps those with a new mortgage.
    KB
    15th Aug 2019
    10:44am
    Fees can be expensive with specialists but you do get some back around 100.Been to see a few myself . Have am emergency account to pay upfront costs. Life is becoming more expensive for those of us living on a pension and savings only
    KB
    15th Aug 2019
    10:44am
    Fees can be expensive with specialists but you do get some back around 100.Been to see a few myself . Have am emergency account to pay upfront costs. Life is becoming more expensive for those of us living on a pension and savings only
    Anonymous
    15th Aug 2019
    12:35pm
    Specialists specialize in one thing - gouging patients via a walletectomy.
    AutumnOz
    15th Aug 2019
    2:28pm
    KB, I also have an emergency account but these specialist fees are becoming too much.
    Intellego, good comment.
    Tanker
    15th Aug 2019
    10:41am
    One way to spend retirement funds would be on wine, women and song and then simply waste the rest.
    Seriously how good is it to have the good money managers in charge.
    Farside
    15th Aug 2019
    10:50am
    you and old mate gerry are in sympatico. You should join forces to party like there is no tomorrow!
    AussieTuca
    15th Aug 2019
    12:09pm
    Wine, women and song... What is that? I vaguely remember something like that but then I had some money to spend...
    Tanker
    15th Aug 2019
    10:41am
    One way to spend retirement funds would be on wine, women and song and then simply waste the rest.
    Seriously how good is it to have the good money managers in charge.
    Chris B T
    15th Aug 2019
    11:15am
    How would Deeming Rates Go, when the negative interest kick in be well above RBA rates.
    Couldn't see Zero % for Deeming Rates or anything in the Negative %.
    {;-(!)
    gerry
    15th Aug 2019
    12:14pm
    How would Deeming Rates Go,
    They will give you money back
    gerry
    15th Aug 2019
    12:14pm
    How would Deeming Rates Go,
    They will give you money back
    Chris B T
    16th Aug 2019
    7:33am
    Who is Giving You Money Back.?
    Deeming Rates are used Reduce Your Pension, by Deeming You Have made a Earning.
    Quote "Please Explain"
    Karl Marx
    15th Aug 2019
    11:43am
    Banks will jyst up the interest rate on all credit outside of a mortgage rate. RBA need to look at Australian needs first & foremost & stop looking at what is happening overseas. The yanks have recently increased their base rate.
    fearlessfly
    15th Aug 2019
    11:46am
    Well they can shove that right up the old ring gear ! If they implement negative interest rates I'll be pulling out my cash (not that there's much of it) and keeping it at home !
    Susanne
    15th Aug 2019
    11:52am
    In Switzerland the bank charges for keeping your money it has been like that for ages
    Karl Marx
    15th Aug 2019
    12:04pm
    Irrelevant what banks do in Switzerland or anywhere else except in Australia.
    By all means Fearless great idea as centrelink don't have access to know how much you have at home.
    Our government wants Australia to be a cashless society which would put Australians at the mercy of banks even more
    Anonymous
    16th Aug 2019
    8:23am
    My family lives in Switzerland; the negative rate only applies to term deposits and ordinary accounts of more than Fr. 100'000 ($A140'000). Most people are not impacted and the savvy ones bought gold long ago.
    sunnyOz
    15th Aug 2019
    12:12pm
    I wanted to withdraw $4,500 cash from my own bank. Too much for the ATM, so went in - and was gobsmacked when I was told there was a $6 charge to withdraw! I was stunned! I refused, and asked to speak to a manager to complain, and they quickly backed down.
    Next time I need a big wad of cash, I'll take it out of the ATM over a number of days. I refuse to pay to get my own money out. They charge enough to have it in the first place, and give a pittance of interest on what is in there.
    Anonymous
    16th Aug 2019
    8:25am
    First time I heard of that here in Oz. SunnyOz could you please name the bank concerned.

    15th Aug 2019
    12:32pm
    This all puts the lie to the myth that the LNP are great economic managers. Bollocks! They're hopeless bunglers.

    If the banks try negative interest rates, there'll probably be revolution.
    Jenny
    15th Aug 2019
    1:31pm
    My concern is that there would be a rush of customers trying to get their money out, and a subsequent collapse of the banking system.
    GeorgeM
    15th Aug 2019
    2:29pm
    You are right, Jenny. I find the RBA Governor to be very weak to even suggest negative rates are "possible". It is their duty, along with the Govt's, to stop the economy going down that path - they should definitely lose their jobs if they can't point to actions needed now to stop the economy going down. They (RBA) can easily print money, and the Govt can hand it out to all, especially at the lower end, to spend it - a simple and quick initial solution.

    In addition, it is clearly time for the Govt to borrow large sums at very low Interest Rates, and fund big Infrastructure projects to boost our Electricity capacity, Water storage & distribution, build new Roads as needed, as well as buy back key Assets taken over by foreigners. Just needs some b.lls in the Govt ranks to start serious action and not let the fear-mongers take over.
    Karl Marx
    15th Aug 2019
    3:31pm
    George M, I think once they are elected ALL male politicians are castrated, hence no bollocks so they are weak as p_ss. Once gone can't grow them back.
    Farside
    15th Aug 2019
    5:04pm
    George, who is responsible for spending money into circulation - RBA or Treasury? I thought RBA only controlled interest rates and national foreign currency reserves to maintain stability. The RBA is on record with requesting more government intervention.

    Undoubtedly there are plenty of productive infrastructure projects for the government to spend cash however it is ideologically locked into trickle down theory and running the national economy like a household budget.
    casey
    15th Aug 2019
    1:17pm
    Maybe time to keep it under the bed
    KSS
    15th Aug 2019
    1:36pm
    Nah! Sock draw!
    Tricky
    15th Aug 2019
    2:02pm
    How is centre link going to manage 'Deeming Rates', Just bury there heads in the sand and hope it goes away!
    arbee
    15th Aug 2019
    2:16pm
    Time to get the shoe boxes out from under the bed again.
    Bet the deeming rates wont drop below 2% to 3%.
    pedro the swift
    15th Aug 2019
    3:49pm
    Never fear . The banks will NEVER pay you to get a loan if rates go negative. They will dream up some charge and still make billions.
    gravy
    15th Aug 2019
    8:47pm
    Some here talk about taking their money out of the Banks to keep at home. The Cash Transactions Bill to go soon to Parliament will make it illegal to pay or accept cash for a bill/purchase of $10K or more. You will be required to pay/receive it by EFT, CC, Debit Card or Cheque. As most don't have cheque books these days then this will require Bank Cheques if they wish to pay by cheque. https://www.treasury.gov.au/consultation/c2019-t395788
    Franky
    15th Aug 2019
    9:11pm
    I see a collapse of the whole banking system coming, a massive reset. Negative interest rates destroy the currency and the trust in the system. Gold might be the way to go or property.
    Florgan
    15th Aug 2019
    10:08pm
    GeorgeM
    They can’t print money , it will make the economy worse. The rest of your ideas are good ones.
    Briar
    16th Aug 2019
    3:53pm
    I used to laugh at my Dad who kept a lot of money at home in a hidden safe. I am beginning to think that he had it right, especially with the deeming rates still not being to the interest rate.