Can An Interest Rate Be Negative?

What Are Negative Interest Rates?

Negative interest rates refer to a scenario in which cash deposits incur a charge for storage at a bank, rather than receiving interest income.

Instead of receiving money on deposits in the form of interest, depositors must pay regularly to keep their money with the bank.

What happens when interest rates are negative?

A negative interest rate means that the central bank (and perhaps private banks) will charge negative interest. Instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank.

Can the real interest rate be negative?

Real interest rates can be negative, but nominal interest rates cannot. Real interest rates are negative when the rate of inflation is higher than the nominal interest rate. Nominal interest rates cannot be negative because if banks charged a negative nominal interest rate, they would be paying you to borrow money!

What are the negative effects of low interest rates?

Low Interest Rates and the Economy

Low interest rates also negatively affect people who live off the interest income from their savings, so they cut back their spending. When a large group of people, such as baby boomer retirees, reduce their spending, overall economic activity slows.

Why is Euribor negative?

A negative euribor rate means that the interest rate is negative- instead of paying interest to borrow money, you’re being paid money to borrow someone elses money (a bit backwards from what we consider “normal”). But sometimes even 0% interest rates aren’t enough, and they can go (slightly) negative.