Could negative interest rates be on the cards? - Savings - News - Moneyfacts

News

Moneyfacts.co.uk News brings you the latest financial & economic news & reviews of the best products in the UK by our team of money experts.

Could negative interest rates be on the cards?

Could negative interest rates be on the cards?

Category: Savings

Updated: 09/12/2016
First Published: 27/07/2016

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

NatWest and RBS have written to over 1 million business customers to warn that, should the Bank of England cut base rate significantly at its meeting next week, they may have to charge to accept deposits. Could this herald the beginning of negative savings rates?

What the banks say

Yesterday's warning from RBS Group has come largely out of the blue, but it certainly didn't hold any punches. In a letter to 1.3 million business and commercial customers, the group said that "global interest rates remain at very low levels... Dependent on future market conditions,
this could result in us charging interest on credit balances". In layman's terms, this means that negative interest rates could be a possibility.

If it were to come to fruition, it'd make Royal Bank of Scotland and NatWest the first banks to introduce negative interest rates, and this has understandably got people rattled. That said, the letter was only to customers holding commercial or business accounts, with personal customers unaffected, and a spokesperson stressed that the group would do everything it could to protect customers.

Why the warning?

The Monetary Policy Committee (MPC), the Bank of England's rate-setting team, is due to vote on base rate next week, and a cut is widely predicted. It was even hinted at in the minutes of the last meeting, and banks are understandably preparing themselves.

However, for the time being at least, base rate isn't expected to turn negative. Commentators therefore suspect that the banks' warning could serve as a reminder to the MPC of the negative consequences that could result from a significant interest rate cut, so ideally, the rate won't be cut to extreme levels.

What does it mean for you?

Hopefully, nothing: while it's likely that the base rate will be cut to some extent next week, a negative reading isn't thought to be on the cards, so negative savings rates are, for now at least, a dim and distant prospect.

The banks in question have even said that they'd strive to protect customers should anything unexpected happen at next week's meeting, and keep in mind that they only wrote to their business customers, not their personal savers.

There are slight fears that this could change at some point – a spokesperson added that RBS Group would "consider any necessary action in the event of the Bank of England base rate falling below zero", and if it did take the plunge and start charging to hold deposits, other banks could follow suit – but it's still highly unlikely. Negative interest rates are simply not expected to come to fruition, at least not for personal savings accounts or current accounts, so don't start keeping your money under the mattress just yet!

Instead, make it work as hard as possible by comparing the top accounts. If you're concerned about rates falling further in the event of a cut to base rate, it may be worth seeking a fixed rate bond, but don't overlook easy access versions if you may need quick access to your cash. Above all, do your research to make sure you're getting the best deal possible, and hopefully your savings pot won't be hit by next week's decision.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

Related Articles

Just 44 savings accounts beat inflation

Inflation recorded another large jump during December, and predictably, this has had a devastating impact on the number of savings accounts that beat it, so much so that you’ll need to lock your money away if you want an inflation-beating return.

Just 47% have money in a savings account

We’re often told of the importance of saving, yet unfortunately, the message doesn’t always get through. Indeed, research shows that just 47% of those surveyed have money in a savings account, and 17% have no savings or investment whatsoever.

How much will you save this year?

Many of us have set savings goals for the year ahead, and planning to budget better and save more will be at the top of many financial resolution lists. But how much are you hoping to squirrel away? Encouragingly, many people have impressive targets.
 
Close