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Can anyone explain negative interest rates to me?
Posted on 8/30/19 at 10:24 am
Posted on 8/30/19 at 10:24 am
This seems illogical to me but European banks are doing this. What is the incentive for the lender in this situation?
Posted on 8/30/19 at 11:10 am to ScaryClown
Great question. I'm also listening for an explanation.
Posted on 8/30/19 at 11:16 am to ScaryClown
You give me $1,000
One year goes by
I give you back $900
Boom...negative 10% interest rate.
Anything else?
One year goes by
I give you back $900
Boom...negative 10% interest rate.
Anything else?
Posted on 8/30/19 at 11:17 am to ScaryClown
It's to incentivise people to spend money by taking out loans and not store in a bank account. Its suppose to create economic growth.
Posted on 8/30/19 at 11:19 am to ScaryClown
Incentives banks to send out their money via loans rather than store it.
Posted on 8/30/19 at 11:45 am to ScaryClown
quote:Well I think the easiest part of it is establishing what they’re SUPPOSED to do: incentivize spending over savings by making money that sits in an account worth less than than they were with a higher rate, and they make the value of that money worth less in the future as well compared to other alternatives.
This seems illogical to me but European banks are doing this.
And finally when any rate is below the rate of inflation, then the purchasing power of that money is worth more now than it will be in the future. And therefore the REAL interest rate is negative, regardless of how high it is. And technically a negative interest rate could have a real positive rate if there was deflation and the rate was lowers.
In my opinion, the big difference with negative interest rates isn’t the purpose or the function, since the real interest rate is the real-world value. The biggest difference is the psychological impact of knowing that your account’s amount will get smaller if kept with in that account, instead of the amount staying the same or increasing and just getting smaller relative to its real-world value.
Posted on 8/30/19 at 12:32 pm to ScaryClown
There is a macro and micro aspect to this. Bank accounting is kind of backwards. The negative rates are for overnight lending bank to bank is my understanding. Deposits are a liability. Loans are an asset. There is a cash flow problem with investments in business. Negative rates also deter foreign investment.
so here is my theory
1. Europe wants growth
2. Necessity for growth is people spending money
3. Parking money in a bank means you are losing money
4. investing your money in something means positive growth vs stagnant with everyone parking money in a bank for safety purposes.
5. The idea is all of this will increase the velocity of money. Basically the number of people touching the money supply domestically spurring growth, deterring foreign investment, and increasing exports. Sounds weird AF but that's what I've gathered.
This is my theory and I am wright all the time and never wong.
so here is my theory
1. Europe wants growth
2. Necessity for growth is people spending money
3. Parking money in a bank means you are losing money
4. investing your money in something means positive growth vs stagnant with everyone parking money in a bank for safety purposes.
5. The idea is all of this will increase the velocity of money. Basically the number of people touching the money supply domestically spurring growth, deterring foreign investment, and increasing exports. Sounds weird AF but that's what I've gathered.
This is my theory and I am wright all the time and never wong.
Posted on 8/30/19 at 2:16 pm to yatesdog38
Thank you to everyone for the answers except IAmBatman.
This post was edited on 8/30/19 at 2:20 pm
Posted on 8/30/19 at 2:22 pm to ScaryClown
Yes. Either hold your money in cash or investments. Otherwise, they will take your money.
Posted on 8/30/19 at 3:13 pm to ScaryClown
quote:
Thank you to everyone for the answers except IAmBatman.
Posted on 9/1/19 at 1:32 am to yatesdog38
quote:
The negative rates are for overnight lending
Put me down for $100,000,000. I'll bring most of it back in the morning.
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