Negative Interest Rates? How’s that work?
In: Economics
Normal interest is that you lend money to the bank, and they pay you interest (kinda like “rent” on your money). Negative interest is when you have to pay the bank. On small accounts, you actually do pay your bank to keep your money safe and available for payment.
But negative interest rates start with central bank. There is a very basic rule that commercial banks have to keep some of their money in the central bank, as safety reserves. Normally central bank pays interest on that money, but sometimes is can make it negative. This is a way to encourage banks to invest money into the economy rather than keep it in a bank.
The interest rates that banks charge (or pay) to their customers are a few % above the central bank rate, so those rarely go negative.
What happens more often is that inflation rate become more than interest rate, so their difference (the “real interest rate”) gets negative.
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