ST: Expectations that Negative Retail Deposit Rates are Coming

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The Sunday Times report here. (Free registration required to read up to 2 articles per week).

This year looks like being another bad one for depositors — and possibly a historic one. Expectations are high that 2017 will be the first year in which Irish savers are obliged to pay for money sitting on deposit. This would mean negative returns — or depositors’ money slowly dying over time as negative interest rates and inflation bite.

Some banks have started to charge negative interest rates to corporate depositors; this suggests it is only a matter of time before the same happens to smaller savers.

I don't agree that negative retail rates are coming:
- Thus far, in the many countries with zero or negative base rates, the lowest retail rates, bar a tiny number of exceptions, has being zero.
- In Japan, the country with zero or close to zero base rates for the longest, the lowest retail rates are also zero.
- The risks of cash hoarding, deposit losses and the loss of the ability to cross sell products, will mean that banks will not want to annoy customers with negative rates.

I think 0.00% AER is the floor and rates on average are fast approaching that floor.
 
I suppose that it's psychologically important if the rate is -0.1% rather than 0%. But does it matter financially?

Someone with €100,000 on deposit would have to pay €100 a year for the bank to mind their money.

It would begin to matter at -1%, where they would have to pay €1,000 a year.

But are they not more likely to lose that through inflation in any event?

Brendan
 
I have not read the ST article but surely ECB rates are more likely to go up rather than down, inflation in Germany is at 1.8%. Does the ST give a reason or is it just a catchy headline.
 
I suppose that it's psychologically important if the rate is -0.1% rather than 0%. But does it matter financially?

Agreed that the monetary aspect will be small if the negative rate is small.

The psychologically aspect is huge. Small retail savers will rebel at any notion that their money in the bank is going down, not up. There would be strongly negative reaction by small savers.

I have not read the ST article but surely ECB rates are more likely to go up rather than down, inflation in Germany is at 1.8%. Does the ST give a reason or is it just a catchy headline.

No reason given in the article with regard to why to expect negatives rates this year.

The link between ECB rates and deposit rates is now weak. One of the main drivers in the decline in deposit rates is the fact that banks have too much deposits. This will not change if ECB rates go up.
 
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