Dutch entrepreneurs avoiding negative interest by opening multiple bank accounts
nltimes.nl
nltimes.nl
For a central bank there's no such thing as no policy. Even inaction is a policy.
(Of course, there are systems that work without a central bank. And can work very well in fact. But that's not what the Dutch as part of the Euro zone have.)
I'll admit I'm pretty furious at the fed right now though. As someone with a lot of assets in cash who was hoping to buy a house last year, I have been double penetrated by inflation and spiraling home prices. The housing market accelerated just out of my reach before I could make a move and my cash pile is on fire. I'd have moved back into the stock market to protect it, but it seemed risky given historical valuations and such. Now I'm poorer and I can't help but think Powell effectively just stole from me and I've been punished for being defensive and not participating in the fueling of an asset bubble.
Yes, that is exactly it. The economy falls apart if everyone saves too much. Money is an imaginary number designed to facilitate separation of labor, if too many people save and retire early then there won't be enough people working.
FWIW I am the same way, and used to be angry about it, but I have accepted it for what it is. I bought my house 15 years ago at the height of the last housing bubble. I was under water for a while, but I didn't qualify for any of the assistance because I bought a house I could afford. If I had bought a more expensive house, or if I made slightly less money I would have been able to get some money from the government. It was all based on the ratio of income to mortgage payment, which is still kind of annoying.
Only way I could cut my losses in my mind was to pay off the house as quickly as possible, to save money on interest. So now it's paid off, and for the first time since a year after I moved in Zillow has it at a higher price than I paid for it, though just barely.
But back to the point, don't keep your assets in cash, or any one thing for that matter. Index funds, mutual funds, commodities, collectables, anything that is easy to sell and will generally go up in price with inflation. These policies are meant to encourage people with cash to do things with that cash, instead of hoarding it.
I have no problem with policies meant to encourage people to do things with their cash, but only if proper social measures are taken to provide safety and well-being for those people if and when unfortunate events strike e.g. encouraging people to not save their money is a little bit more palatable in a country where socialized health care, public transportation, free public education, etc..
In other words, perhaps people wouldn't need to save so much money if more of their basic needs were covered. In my country (USA), not having savings is like playing a game of Russian roulette with one's financial well-being, assuming one is fortunate enough to have enough income to even have savings.
> These policies are meant to encourage people with cash to do things with that cash, instead of hoarding it.
Which cause the rich to get richer, and the poor get poorer.
Yes, this I recently learned is called the paradox of thrift. [1]
[1] https://www.investopedia.com/terms/p/paradox-of-thrift.asp
I suspect you would have been a lot more furious at the Fed in the event they had sat back during COVID and presided over a deflationary spiral triggered by the lockdowns. Can't get a mortgage if you're out of work, ya know?
> As someone with a lot of assets in cash who was hoping to buy a house last year...
Let me stop you right there. Generally speaking, you shouldn't hold cash. Nobody should hold cash. Nobody should have ever held cash because even at the baseline expectation 2% inflation that's still a loss.
> I have been double penetrated by inflation...
Inflation is somewhere between 2 and 5%. That's not what I would call "penetration." Mild discomfort maybe.
> ...and spiraling home prices.
Housing affordability hasn't really changed on a monthly basis, because on a 30-year fixed rate mortgage the drop in interest rates from 4.xx% to 2.xx% means that a monthly payment two years ago on a $1M property is the same as it would be today on a $1.2M property. That's napkin math, I believe the spread is even larger IRL.
In fact, if you can lock in a 2.xx% mortgage in a 2-5% inflationary environment then it is in real dollar terms a zero-interest loan. Before factoring in tax deductions.
What's become more painful is making the down-payment.
> Now I'm poorer and I can't help but think Powell effectively just stole from me and I've been punished for being defensive and not participating in the fueling of an asset bubble.
You're not poorer, you're not as rich as you thought you'd be.
arcticbull said '... you would have been a lot more furious at the Fed in the event they had sat back during COVID and presided over a deflationary spiral ...'
Deflation makes cash have more purchasing power, so arcticbull your speculation is wrong. Completely backwards.
No, what I'm saying is the government failed to act sufficiently and forced the fed to act when they shouldn't have(or at least to the level they have).
> Generally speaking, you shouldn't hold cash.
Now come on that's not really true in the short term. Generally speaking, you shouldn't put your money in the market if you need it in the next 5 years. Sure I could have bought CDs but have you looked at rates lately? That wouldn't have helped. My only option would have been to pile into an asset, and by the time I needed to park my money assets had already appreciated above historical norms. I'd be gambling against a reversion to the mean.
> Housing affordability hasn't really changed on a monthly basis
The market I am familiar with and was planning on going back into is up about 35% from late 2019. You're also then gambling that these historically high valuations will hold going forward. Homebuyer sentiment has plummeted because folks like me no longer think paying these high prices(https://fred.stlouisfed.org/series/CSUSHPINSA) makes sense.
Nah, holding cash is fine under some circumstances.
Yes, the 2% inflation that the Fed chose to aim for makes holding cash costly.
But everybody holds cash. It's just that higher inflation expectations makes people hold less cash in real terms.
But then, you can be angry at the Fed for choosing that particular inflation target. The Fed could just as well go for 0% inflation. Or even go for a stable nominal GDP 65,000 USD per year per capita in perpetuity. (The latter would basically automatically ensure its dual mandate. Though most of the proponents of nominal GDP level targeting suggest to target a slight increase over time.)
In such a stable nominal-GDP system, holding cash would be rational in many more circumstances than today, because in general cash would slowly increase in real value as productivity and thus real GDP improved.
I don’t think they intended to be holding cash, they were setting up for a large purchase and the timing was bad. But yeah, arguably when there’s no immediate prospect of the opportunity resurfacing, probably reinvesting that paper would be more congruent with the system we have before us.
This is a factor worth considering for anyone who is currently looking to buy a home. As long as you can afford the downpayment, you could lock in a fixed-rate mortgage while your earnings or other savings could grow at a higher rate. This is analogous to what some companies have done in recent years, loading up on low interest debt.
That money that would have gone towards your equity, is being spent in interest. This is why people making 60k/yr. buy $65,000 trucks. Interest rates drop and they only look at the monthly payment amount.
You don’t always get the full tax deduction on a first home either. In high tax states the 10k deduction limit kicks in when your paying high state taxes + mortgage interest.
Also, “don’t worry, just look at the monthly payment” is something that should only ever be said by a car salesman.
Say that he's got $500K in cash but can put only $3.8K/month toward the mortgage, while the average person around him has $250K but can put $5K/month toward a mortgage. Average housing prices are $1.25M, so at 4.5% interest rates he's competitive. He puts down $500K and borrows $750K @ $3.8K/month for a $1.25M house, while the average borrower puts down 20% ($250K) and borrows $1M @ $5K/month.
If interest rates go down to 2.5% like they did now, the average borrower can now borrow $1.25M, so home prices go up to $1.5M. His cash stash still would require a $1M loan, which would cost around $4K/month, so he has been priced out.
If interest rates go up to 20% like in 1980, then the average borrower can only borrow $300K to maintain $5K/month, so home prices drop to around $550K and he can purchase with cash, or a tiny mortgage. All of the homes between $550K-730K (previously, roughly $1.25M-$1.7M) are now unaffordable to the average mortgage buyer, but are well within OP's range.
Inflation acts as a tax on savers and a subsidy for debtors.
There's a lot wrong with the Netherlands and Dutch people but economically everything is still chugging along nicely. Our sole saving grace.
Financial markets don't seem to expect either. Inflation expectations (via TIPS spreads) are where the Fed wants them.
So honest hardworking people got triple-fucked.
I can't imagine how well UBI would ever go. This should be the nail in the coffin for UBI for me, I will never vote for it.
Not everyone got it, so it wasn't universal.
They shut down most small businesses, so the benefits of the extra income were consolidated in a few major companies.
The housing market went up because people who were previously happy to live in an expensive small apartment in a busy city were suddenly forced to stay inside most of the time, and realized they would rather have a bigger place.
> So honest hardworking people got triple-fucked.
You're absolutely right. Real wages are actually down. If I wasn't a relatively rich SW guy and was a laborer I might be out in the streets lighting shit on fire right about now. I feel frustrated because I might not be able to buy a home again for a year or two, but there are people who are seeing their dreams disappear forever in front of their eyes. Imagine being a low-skilled person who was aiming to buy a house in a lower-tier market until outside speculators and investors move in, searching for anywhere they can park their leveraged cash piles before inflation sets them aflame. I can only hope that these piles of capital go up in smoke as the malinvestments driven by fanatical fed policy prove unwise.
However, asset inflation is not quite the solution it seems, as the government taxes the illusory capital "gains" due to inflation. I suspect the stock market surge over the last year is mostly fake inflation gains.
It's not really possible to make 100% gains out of 5% inflation. Not every price increase is inflation!
The increase in the price of stocks isn't really inflation (except with respect to CPI) because 1 share of AAPL buys you far more CPI goods than 1 share of AAPL bought you 2 years ago. For it to be "inflation" and "entirely illusory" 1 AAPL share, while priced at $150 would have to only buy you as much a 1 AAPL share 2 years ago at $50.
That makes the increase in asset prices "ROI" not inflation.
What you're seeing is a massive increase in personal savings among Americans, recently at near all-time highs. [1] Combined with FINRA margin debt at near all-time highs due to the low-cost and broader availability of loans. [2] That's my theory anyways.
[1] https://fred.stlouisfed.org/series/PSAVERT
[2] https://www.advisorperspectives.com/dshort/updates/2021/08/1...
There are two reasons why stock prices go up. Inflation raises revenue expectations. Lower interest rates raise the value of future cash flows. This is especially bad with land because it can absorb any additional money you get from lower interest rates. Low interest rates make your car cheap but not your house... It's a big problem.
Inaction is the only policy. All the other actions are stuff that these people do to justify their existence .
With all due respect for Jerome Powell, Bernanke etc. these people are kind of frauds.
They are the only academic which are globally known and get all the respect and bows as well as recognition.
But their craft is a pseudoscience. The Nobel committee knows this, in fact the Nobel Prize for Economics is commonly referred as such but in reality it's:
"The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel"
Worlds apart.
If they were real men they'd pick a real science and face real irrelevance like real men if they are wrong or fail to make important contributions. Only in economics people are still around after getting it wrong so many times.
It seems like the more wrong you are , the more recognition you get, as people anticipate that economists who shoot frequently will get it right more than those who shoot infrequently given the randomness of their predictions
My entire family s moving assets around in creative ways as to save money. In anticipation of my the death of my grandparent, he is now loaning money to his children in the legal sense to avoid inheritance tax so that when he dies they don't have to pay it. — All of this is legal, and it is silly.
Silly? Yes, I agree. I favour about 50% inheritance tax with almost zero minimum. Inheritance is fuel for the fire of income inequality. Families create dynasties by avoiding inheritance tax. Most highly industrialised, wealthy countries would have much less income inequality with vastly higher inheritance taxes.
Your father is simply wrong. It can, and is done in my family to avoid losing out on university, rent, and health insurance subsidies that only apply to the poorest segment of society.
By moving our assets around, the poorest members of the family can continue to receive them all the while effectively being slightly over this treshold.
There is much to gain from creative accounting for the poor in countries that provide assistance to the poor by making one appear poorer than one is.
> Silly? Yes, I agree. I favour about 50% inheritance tax with almost zero minimum. Inheritance is fuel for the fire of income inequality. Families create dynasties by avoiding inheritance tax. Most highly industrialised, wealthy countries would have much less income inequality with vastly higher inheritance taxes.
The problem is that it is very easy to avoid it in a number of ways such as simply creating a shell company jointly with one's heirs and then donating the assets to the company; the heir then becomes the sole owner of the company after death, as if such taxes were to apply to stakes in a company, then companies would go defunct upon the deaths of some of their owners.
Tax laws in many ways rely on citizens not being clever enough to exploit the numerous loopholes, — but then again “idiot tax” is not something I'm entirely opposed to.
Its trivial for someone with lots of money to find ways to avoid dying with money but still ensure the next generation has a good life. As grandparent comment suggests. I don't think any tax or any plan that is not destructively over-burdensome can avoid people ensuring their next of kin have a good life.
It's true that extremely tax-heavy countries generally have poorer populations with a more even wealth distribution, but that's more or less the result of "nobody will get rich if you take everyone's money".
The vast majority of millionaires in the US are self made, so inheritance taxes couldn't possibly change that?
https://fred.stlouisfed.org/series/WALCL
We already see the impact in massive asset price inflation over the last decade, a distorted bond market, growing inequality, an inefficient stock market, and a proliferation of scams and fraud. This is not going to end well and MMT is not a panacea.
How do we now leave ZIRP and QE without crashing markets and entering another depression? They have already tried several times to exit and had to abandon it.
And, what is your alternative plan to quantitative easing (QE)?
See the linked graph above for evidence of just how abnormal the last decade has been.
QE is a failure on its own terms. It was to be targeted and of short duration and to promote growth and suppress inflation. None of those objectives were achieved and we’re now addicted to it in ever increasing amounts, along with zirp. What do we do when the next crisis hits if we don’t normalise rates and bond buying again? How will the bond market function when the gov owns more than half its own debt? How will stock markets function when governments step in to buy even corporate bonds indiscriminately with new money?
What happens when the only way the state can sell debt is to print the money and buy it itself? What happens in the next crises when we need to stimulate the economy and rates are still negative?
At some point you can't keep kicking the can down the road. When do we reach that point? Are we there now?
I'm not a doom and gloom kind of fellow, but this does not appear to be sustainable to me. As with climate change, destruction of ecosystems, and draining groundwater reserves, all unsustainable practices come to an end. Abruptly if not planned for. It looks like we're nearing that point with monetary policy.
Clearly not, the peak was in 1981 which is more than 50 years after the Great Depression: https://advisor.visualcapitalist.com/us-interest-rates/
We are at crazy lows compared to most of this time frame.
After that, further decreases of the interest rate can only work if cash withdrawals are restricted to prevent bank runs, or alternatively if the value of physical cash and digital deposits are decoupled. The IMF has posted something about the latter option[1].
[1] https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-nega...
Does that give you confidence? 80 years doesn't seem long to me.
I’d also like to point out that prior to the current system, market panics occurred significantly more often than once in 80 years. So if we’re comparing the system we have today and the system that existed 80 years before it, the current system seems measurably more stable.
And 80 years is roughly 50% of all years of industrialised economies that started around 1850. Recall that the world economy had zero growth per capita until the industrial revolution started around 1850.
Of the countries part of the UN, only 14 countries have a constitutions older than 80 years. The oldest is the US in 1788, and the youngest is Ireland in 1937.
Predicting timeframes is tricky. An inflationary spiral by its very nature is an exponential process, so you can seem fine for a while and then all of a sudden there's no way out except through a singular process and things are really bad.
http://rootbug.com/interstellar-oikeassa-aikaan-liittyvat-ol...
>That people’s “time preference”, impatience, cannot be negative in the long run — and hence the possibility of negative real interest rates is not needed.
How does time preference become negative? Aging populations consist of people who need to work now, because they cannot work later. Alternatively, rich people at the top consider money a measure of wealth and optimize it like a high score. Third cause. Banks have written an excessive amount of money losing bonds and the money they have issued does not actually reflect the losses in the bond market (2008). In other words, people use money to isolate themselves from losses in the real economy because it is insured by the government.
I will say this: Over the long term interest rates are not set by banks, not even the central bank. It is primarily the availability of solvent borrowers. Companies essentially offer an investment opportunity to the bank and promise a fixed rate of return. The banks purpose is to price risk, effectively it is determining whether that promise is the real deal. The fact that low interest rates have not lead to inflation simply means that there are no solvent borrowers at that level of interest.
Here is a perverse fact about deflation: Once you have deflation, money itself provides a risk free rate of return that competes with labor (the thing that backs debt based money) for capital. When there is deflation there is no market mechanism that can determine an interest rate that balances credit (savings) and debt (borrowing). According to the Friedman Rule [0] the best interest rate is 0% and it is assuming no inflation or deflation. When you have deflation interest rates must become negative.
That's where you lose me. Prices are going up for many things all over the world (including in the Tech world which used to be highly deflationary). Let's not forget that we are in a pandemic (loss of demand) and that oil prices are relatively low. Prices should have gone down. The only thing going down right now is the government CPI.
Buffet became very rich because of this fact. In the current environment, revenue, profit, growth are what drives valuations. Cigarette butt value investing? Not so much.
But what if you have deflation and/or high taxes? A building, land, machinery, yourself, etc are what you should invest in because they can be used to make money. Those who get rich in these environments are the ones that are making a bet on depreciation of capital (property, goods, etc) being less because of an increase in value or their useful life in an environment that rewards those who put their money to work.
The masterplan is this: Let the banks mess things up, ruin people's trust in their governments and in capitalism, you move to a country that's unlikely to fall to communism, HODL your crypto, then wait it out then watch your crypto price moon as capitalists desperately try to flee into crypto to protect their wealth while their home countries fall to communism.
Honestly, I'm tired of "boomer capitalism" i.e. capitalism that thinks exponential growth that followed a devastating war should be permanent for all eternity. Essentially demanding that we have periodic wars according to the broken window fallacy.
Where is the "maximalist" capitalism that lets humanity reach its full potential instead of insisting on profit expectations that are divorced from reality?
I don't know what you mean by protecting "their wealth" because money is a promise to work. You cannot protect such a thing by using it to purchase a commodity because there is no promise that the commodity will be worth anything. Sure, the speculation is sort of reliable but it is still speculation.
There already is. Asset seizures and wealth redistribution are central planks for Sanders & Warren.
Negative rates have been around since 2014. And this "trick" of opening multiple bank accounts has been exploited across the EU for pretty much the same period of time.
For example, I've frequently done business with German companies. They don't even hide it. It is not in the slightest bit uncommon to receive an invoice with four or five EUR bank accounts printed on it. You can randomly pick your "preferred" account to pay to and the company's accountant will rebalance the accounts at the end of the quarter (or wahtever).
Sometimes they result from a time where it took several bank working days to process a money transfer between different banks. Having bank accounts at banks with large customer bases (e.g. Sparkasse, Postbank, ..) allowed for quicker money transfers from these customer to the company. A customer could choose any of these bank accounts to settle the invoice.
Of course, a company could and can also have bank accounts not disclosed on an invoice.
Edit: Also note, that negative interest especially for major "online" banks just became a thing in Europe recently. Therefore, I think it is not only Entrepreneurs who redistribute their assets to avoid negative interest eating up their savings in addition to inflation, but also normal people.
Also, it's usually a good idea to have a backup just in case something goes wrong with your primary bank account. Dealing with bureaucracy is bad enough, dealing with it while you're also unable to send or receive payments is way worse.
Isn't Germany subject to SEPA time constraints like everyone else ?
> ...[A]ll standard SEPA transfers should arrive within a maximum of 2 working days. Keep in mind that if a transfer is made just before a weekend or holiday, the time frame will be extended to a maximum of 3 working days.
> You’ve probably heard that all SEPA transfers have to be completed within one “banking day,” so let’s clarify what that means—one banking day is equivalent to two working days due to the opening hours of the banks involved. Any weekday that is not a holiday is considered a working day.
[1] https://support.n26.com/en-eu/payments-transfers-and-withdra...
ETA: 2011
Wealthy people opening multiple accounts to stay under the FDIC limit is just an example of folks finding a loophole to receive a government benefit that was never really intended for them in the first place.
Minimal comfortable retirement at 65 requires is what, ~ 1M USD in assets? What the FDIC rule implies, is you can't do this in cash. So obviously, inflation makes it stupid to do that in cash, but even without inflation this FDIC rule basically forces you into playing the wall street game (aka subsidizing rich people) in order to retire comfortably. Think about that!
Of course, in our economy inflation is real, too, so pretty soon they are going to have to increase this to beyond $250k even.
Not that individual depositors get a say, but isn't this (the consolidation of banks to relatively few players) the larger source of risk?
In the US, my understanding is that there are a lot of small local banks, but that they are all dependent clients on a much smaller number of larger banks. If I go to my local credit union, I don't think I have a straight-forward way of knowing which mega-bank they depend on, if any. If "per-bank" limits are meant to spread out risk, isn't this undermined by consolidation? Or do I misunderstand the structure of mutual dependence between banks?
To take an extreme example, imagine running Apple’s reserves. It’s probably close in scale to the finances of a fairly large country (and considerably more profitable).
Of course, this is not limited to big businesses. You can do the same with an IB brokerage account but I guess the added complexity is what puts people off.
Why ask the customer to pick? Why not generate invoices with a randomly picked bank account (which can also lend itself to automatic rebalancing)?
You could load-balance once per-customer and not trip this, but that doesn’t get you fully automatic rebalancing.
The simple answer to this is because "Payment Advice" is a big text field in your accounting software and "Randomize per invoice" or "Randomize per vendor" isn't an option it has.
Would be interesting to learn if they give the list in the same order always or if they randomize the order of the account numbers listed, DNS round robin style :)
Maybe its just my perspective having (mostly) dealt with SME's. I would guess larger companies are more clever about it (e.g. perhaps they have one "receipt" account and then the money gets automatically spread out from there once received).
Fees are usually lowest and the transfer is fastest if source and destination accounts are at the same bank.
Slovenia has 5 or so popular banks. Thus it’s feasable for a company to cover banks of most payees.
Profit = Investment Returns - Operational Costs - Interest Paid to customers
Only you have to have sufficiently liquidity such that your customers can get withdrawals whenever they want. This means your investment pool is going to be conservative, thus limiting your returns. Now what happens when your nation's central bank craters interest rates, thus driving your investment returns down? Oh shit, now the revenue source is drying up. What gives? Profit, or your interest rates? Well profits have to be at minimum high enough to justify all this effort, so looks like the interest rates are going to drop and drop and drop as the cost of money goes down....
Congratulations, you are now in the same place as all those other institutions. Who would have guessed that an identical business model subjected to all the same economic push and pulls would end up at the same destination.
Banks don't loan out deposits. Banks create deposits by issuing loans.
So to start a Bank you don't need any deposits, and in a negative interest rate environment you don't need to chase them. Deposits backed by 'cash' will automatically come to you in the backfill process (which is how the deposits created by loans can be used to pay people at other banks).
That's how negative interest rates stimulate loans.
Note that most of the companies in said ETF are also doing this.
Downturn hits. Depositors want to withdraw more money than you've kept around. You start trying to delay withdrawals long enough to satisfy them with the upcoming loan payments. Some of those payments start to be late. More people start demanding that you give them all their deposits back. Eventually get arrested, tried and jailed for running an unregulated, uninsured wildcat bank.
After that, what will you do if you can't make enough money from loans for your employees (including yourself) and your other expenses?
Where this ends is anybody's guess. But when the situation finally does resolve itself, it seems reasonable to expect economic and social dislocation both qualitatively and quantitatively beyond anything ever seen before.
The incremental manner in which the GFC continues to play out has numbed most people to the danger they are in.
Yes, negative nominal interest rates are fairly new.
But we had negative real interest rates on sovereign debt every now and then. Especially during the Great Inflation.
Honestly some commenters in the Netherlands were surprised over the past six months that people suddenly took action when their savings account went from 0% to -0.1% interest, but were entirely passive when their 0% interest account was exposed to 2% inflation for years, which has a much larger impact on purchasing power and was essentially subjecting people to negative annual returns on their purchasing power (i.e., the metric that matters).
My guess is that people expected bank accounts to work as something they have, that is secure and untouchable. It's not that it can't happen (a bank can go bankrupt and the CB refuses to cover the customers) but people who haven't gone through it, believe it can never happen. Their balance being reduced tipped them off that something is not quite alright.
What I'm trying to say is that people are more concerned about the bank dipping into their accounts (regardless of the amount) rather than them losing some Purchasing Power.
Also in DK, the limit for being charged negative interest is generally 100,000 DKK ~ €13,500. With IT salaries it can become a monthly hassle dealing with it.
Probably why their Estonian branch was used to launder money.
https://en.m.wikipedia.org/wiki/Danske_Bank_money_laundering...
Most (all?) online banks I've seen will charge negative rates.
But ultimately the "if, how and when" is a commercial decision for the bank.
Some of them set higher cut-off levels (e.g. 50k vs 100k vs 1m).
Some of them segregate by account type (e.g. higher cut-off for retail clients than for business customers).
It might well be that some of them have a "fair-use policy" where they silently "eat" the negative rates but will quietly invite you to pay or move elsewhere if you have a large balance.
Yes, and the reason they can't make enough is because central banks are pushing down interest rates in order to nudge people into spending vs. saving. If central banks were not acting as a lender of last resort (at record low interest rates no less), the cost to borrow would be higher, and savers would likely be seeing higher interest rates.
Positive interest is compensation for delaying spending and a fee for staying in debt.
Negative interest is a fee for delaying spending and compensation for keeping others in debt.
It's not about "governments thinking", it's about maintaining the balance of supply and demand between debt and credit.
The fact that you desire to hold onto money at 0% just shows how profitable it is.
Note that low interest rates affect those with money (i.e. not poor) much more than those without much money.
The germans made this official in the 2007 crisis by declaring that all bank accounts are guaranteed by state, with a 1 billion euro limit.
https://www.dnb.nl/betrouwbare-financiele-sector/nederlandse...
Are the two that come to mind. Cyprus deposits in a couple of banks in 2013 above 100k were lost I believe. Icesave played out badly in the UK in 08, quite a few councils etc took some nasty lossses.
Either way, waiting for multiple years, winding up and down of court cases, bankrupcy proceedings etc to find out if the rest of your money is gone or not is not much fun.
The kind of person parking a couple of 100k in cash accounts is almost by definition risk averse.
If you have decent money, using single account/country is not just lazy, but stupid.
I would assume since the 100k are guaranteed by law that the state does not further step in on losses above that.
When there is no law like that in place the situation is entirely different.
So if you have 100k€ in the bank in Germany, that bank has to pay for 4k€ - that's just 20€ per annum and charges you 250€ (assuming a typical 50k€ exemption). At the same time they can lebd out 90k€ at a market rate of 1.5% to finance some housing. That's 1350€ revenue per annum. So in this simplified, idealized case, the bank just asks you to increase their revenue by 17% out of your own pocket.
The only case when the bank has to pay more is when they don't hand out enough credits and whose fault is that, frankly? Who should carry that risk?
In short, low interest rates are obviously a factor, but banks didn't have to do this. They're charging you because they can and because most banks are following suit.
As for the reason: it currently costs the bank money to have your money (ECB interest rate on overnight loans is negative), in addition to the costs of operating the bank itself.
Last year, oil futures prices turned negative. Which means "wait, I can take delivery of oil AND get cash for it too." So why didn't people do this? Because there's a cost of cary to oil - I need to pick it up in a train car at a specific place in the US and I need to store it somewhere, which is expensive. So while they were "paying you to take the oil" you couldn't really just jump on it and do it.
This is an analogous situation to what's going on with a negative interest rate. You're right, you're literally better off taking the money out into a pile of cash. And if you only have a few thousand bucks you could just do that (but then you need to drive to the bank, figure out how to store it, drive back when the rate goes back up, etc.) But if you have a few hundred thousand bucks - what are you gonna do? Cash it out in hundreds and keep it in your garage? At some point the logistics and theft risk of that adds up too.
Meaning, similarly to the oil example, while the raw numbers indicate one strategy, the practicality of carrying the asset on your own tends to outweigh the benefit. So yeah, someone may chose to incur negative interest if their only other option is to pile up cash in the house where they have to worry about it being stolen, burning in a fire, etc.
Gresham's Law is that "bad money drives out good" - when you have two forms of currency circulating within the economy and one is inflating at a faster rate than the other, people will tend to spend the inflating currency and hoard the appreciating one. The inverse of that is that they will tend to hoard the appreciating currency and spend the inflating one, i.e. as a store of value, nobody with long time preferences is going to hold cash. Instead they pile into any asset with zero cost of carry and a liquid market, which was stocks from about 1980-2010 and now also includes art, cryptocurrency, real estate, NFTs, other securities, etc.
It occurs to me that this could play tricks on how we measure interest rates. Assuming no central bank interference, interest rates are set at the equilibrium between people who want to borrow cash and those who want to lend cash. But nobody serious about future returns wants to lend cash! They've exited the cash market entirely, and only touch it when they need to convert long-term holdings to short-term holdings. Instead, they trade amongst themselves in asset markets, which have appreciated far quicker than 3% CPIs and 2% nominal interest rates would suggest. It could be that the divorce between stock market returns (10-15% in recent years) vs. interest rates (2-3% in recent years) might indicate that all of the firms with high time preferences have exited the cash market, leaving behind only those firms who need cash now.
Nitpick: It's the equilibrium between people who want to have savings and those who want to have debt. When you have deflation no such mechanism exists which is why the central bank has to set the interest rate manually.
If a bank is forbidden from investing your money, and thus putting your savings at risk, then it costs them money to safely manage it.
Banks have found ways to reinvest your deposits. If the earnings there are higher than the storage costs they can share some of the earnings with you. But if they can’t, they have to charge for their service.
This is very dependent on the country you are in. Some countries have very conservative risk tolerances for their banks which are imposed on them and watched closely.
If anyone charged me negative interests rates on the whole balance I would cancel my account.
And they are also loaning out your money to others at a non trivial rate of interest.
A couple years ago I put a lot of my HSA into investments and the market tanked.
Also, an interest rate of -0.5% is not that much worse than 0% -- they're both a few percentage points below inflation.
I would be willing to pay a lot of money for such a service. Of course, given that I already need it, I might as well choose a cheap option. If that cheap option happens to have a negative cost, I'm not going to complain.
Lafarge met with other banksters in a castle, and they had a big fight.
Is the risk zero? No. Should you put all your funds there? No. But parking a small segment to balance out the negative bank yields is pretty attractive from a risk reward standpoint. If you’re getting negative 0.5% at the bank, you can protect your capital from decaying by moving 10% or less of your cash savings into DeFi.
I'm a big believer in crypto, but I don't think stablecoins are it.
Currently to get crypto on Coinbase or wherever, one needs to go through a crazy signup process where you deliver photos of documents that enables anyone who gets ahold of these photos to identify as you and use these to sign up as you on other places.
It is a catch 22. There should be a crypto way of doing KYC. Not signing up by delivering a photo of you passport, but by signing a message cryptographically.
Really? I'd like to see a civil suit where an institution says I owe them money and shows a picture of my ID as proof of contract.
There are ways of signing legally binding things online (DocuSign for example, which AFAIK was actually tested in a trial in EU), but they have more sophistication than that.
(this isn't an anti-crypto post, just making the point that 5% yields are not unique to crypto and that the choice isn't crypto vs. banks)
Gas prices increased by 4% in just last 3 months:
https://www.mwv.de/statistiken/verbraucherpreise/
The most food prices increased by 5% - 20% in the last year:
https://www.az.com.na/nachrichten/nahrungsmittelpreise-gesti...
source: https://de.statista.com/statistik/daten/studie/1045/umfrage/...
gas prices in germany are highly volatile in general. It is currently as expensive as it was 2012.
source: https://www.adac.de/verkehr/tanken-kraftstoff-antrieb/deutsc...
Citation needed.
E.g. young people are more likely to rent than owning an appartement. But the general inflation reflects only the average spending on housing. So if 50% of the population owns a home, rising rents are only reflected half as strong for the general population.
However I could not find any reliable numbers how strong the contrast for each demographic group is...
Yes, the loan rates are on a historical low, but have been already for a few years now.
Like, salaries do not seem to have similarly risen, so who the hell is buying these houses?
Interest on saving accounts is < 1%, loans are cheap, so everybody's trying to buy houses right now. House prices are rocketing up.
There will be lots of tears and people will lose their home once this starts to change and the fixed rates run out on some of those very cheap loans.
I think I'm confused. I have zero experience with Germany, so please be graceful with what may be a stupid question.
So you're saying the super low rate is only for a set period of time, and will change at some point in the future, correct? If the rate is set to change at some point, you can't really call it a fixed rate, can you? I thought fixed rate meant that it was just that rate for the life of the loan. Hence, fixed versus variable.
What am I missing?
I mean, what became of the business where entrepreneurs go to a bank and loan money to finance building new ventures? For that the bank needs money, right?
So I guess that they don't want money from customers anymore means they get it from elsewhere. Probably from the government in the form of permission to print money?
Let me know if I am wrong here.
So no, banks don't lend other people's money. Not a single bank in the modern world lends other people's money.
Bank lending in fact CREATES deposits. All the money you have in your bank account came from either A) Government spending B) Someone took out a loan. Either public spending or private debt.
See: https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
That's easy then. In case of a bank run, just give everyone their money back. They never loaned their customers' money, so they should have 100% of it ready to go.
So a bank run could be done online? If enough customers of bank A send money to bank B, then bank A has to file for bancruptcy?
At least in the UK, you're typically not charged for having a basic bank account; fancier ones do have monthly charges.
Under current economic policy, banks basically don’t want your money. They have plenty of money they can’t get return on. Processing your dirty cash, maintainibg secure ATMs and servers is not worth it.
They can borrow money from central banks at 0% or negative (return back less than borrowed) with less trouble.
Did anyone think this wouldn't happen?
Remember, you can beat the system, but you can't beat the house...
It could also mean that any amount you borrow would result in you paying back less. It would be a negative interest rate...
If 200k euros of working capital is worth less to you than 500 euros/year then you're really, really bad at capitalism.
The article also fails to mention that bank deposits are only gauranteed up to 100k as well, so if you have a bunch of cash sitting around it is wise to spread it around different institutions anyway.
I’ve never quite understood -- can’t the bank do that for you?
If the obstacle is that savings accounts are expected to have a guaranteed rate with zero risk, the banks ought to provide very easy access to investment accounts, with the ability to move money around frictionlessly.
Is there just no demand for that kind of service, or regulatory problems, or something of that kind?
Edit to add: I always felt that offset mortgages (https://en.wikipedia.org/wiki/Flexible_mortgage#Offset_mortg...) were a nice solution to this problem; it gives you a place to stash your savings and get a reasonable rate of return (basically matching your mortgage rate) while still being accessible if needed. But they seem to have gone out of fashion again, at least in the UK. Anyone know if there was some problem or disadvantage (either to consumers or to the banks)?
Current best instant access rate is around 0.65%.
Government bonds? Corporate bonds? Stocks? Crypto?
Are you willing to cover their potential losses with government guarantees?
Savings accounts are supposed to be a safe storage of money. They have certain insurance guarantees because of that. Encouraging banks to use that money to speculate is exactly what you don’t want them to do. Savings banks are not known to employ the most brilliant investment minds.
What's the CFO going to do when Eurobonds are negative too ?
Converting it un-necessarily into another currency introduces exposure to forex risk.
"Investing", aside from the risk, is not cash or cash-equivalent, so that's out of the question.
Hence the best answer is generally just splitting out into multiple Euro bank accounts.
I once met a woman for some short class on business plans on zoom, and she was actually taught how to create a holding and the whole loophole package to optimize taxes. I asked about the morality of such thing, and I was shocked to realize she did not seem to care at all.
The banality of evil allows some people to just get access to an easier life by not caring.
"Optimize taxes" - What exactly would be wrong with wanting to reduce the taxes you pay?
Did you ever calculate how much you are paying % wise in taxes? If you add all taxes including VAT, fuel taxes, random taxes and such you'll be suprised at the % you get "the priviledge" to pay as an employee every year.
I do not understand why you would personally care about profiting from tax fraud/optimization? I understand that it would be good to prevent this on a societal level, but no personally.
In fact, evading paying taxes in a legal way should not be an excepction, but the norm.
Stop romanticizing taxes.
I'm not an entrepreneur and don't have that much money in the bank but this really worries me because I want to buy a house at some point. This is becoming crazily difficult.
I think it's pretty insane that the ECB still does this negative interest thing. Even at zero interest we're already losing savings all the time due to inflation. It's really undermining my trust in the banking system, basically I'm leaving my money in a tank that's slowly draining.. Totally counter to the concept of a bank which should be trusted and safe. I can understand they need to be paid too, but they already charge a fee for the account. But actually taking money away is ridiculous.. Meanwhile house prices are increasing dramatically yet banks need ever more personal investment to provide a mortgage. How can I ever get this if I can't even save money anymore?
They should really stop trying to appease multinationals who benefit from this for cheap exports, and gain consumer trust back. These multinationals are also the ones avoiding taxes on a wide scale (e.g. Apple not paying any tax in Ireland on all their European profits) and not even contributing to our system.
The things that are very wrong that are causing it, have come into existence. It started in EU country central bank lending to banks. Now end consumers are seeing that in their personal banking.
Imaging a world where the Dutch now have a "bank" that is over the internet in another country. Their money is stored in USD stable coin, or another countries stable coin. Citizens could flee there, in mass.
First, the country (Netherlands), would try to stop the on-ramps. But sooner or later, there will be other entrepreneurs who make easy ACHes/wires that re-route to a crypto account and buy-into crypto (like a USD stable coin).
Then the country in mass, could move their bank accounts out of the Netherlands. Then banks in the Netherlands could collapse... ....or be replaced by a healthy alternative (foreign USD Stable coin backed accounts).
Then the massive fundamental problems going on in macroeconomics that cause the negative interest rates will become visible. These problems remain hidden from the citizen-base because of how technical they are. It would require they be fixed, instead of draining money from citizens to put-their-finger-in-the-dike patching the problem.
I don't fully understand your dutch over the internet bank stablecoin comparison, but if you mean that people could flee into different currencies than this is not new at all, some years ago this happened already with the swiss franc. It's also not hidden because there're well enough economists talking about the implications, it's not as complex as you think and yes people with money in the bank are going to be expropriated but this happens anyway if you print more money.