Would You Accept A Negative Interest Rate?

The Wall Street Journal reported yesterday that “The yield on the U.S. Treasury bill maturing on Oct. 2 traded at negative-0.01%.”  The negative rate means that the USA’s government is paid to take out loans and buyers of the treasury bills are charged for saving money.   This situation is similar to someone asking you if they could borrow $10 today with the promise that they will pay you back $9 tomorrow.  You know ahead of time it is a bad deal that will cost you money.  While some professional traders knowingly made money losing trades yesterday, would you ever accept a negative interest rate?

Every day millions of businesses and individuals use bank accounts which effectively have negative rates.  An account with negative interest rates shrinks over time, instead of growing.  Negative interest rate accounts have shrinking balances because the bank charges clients to store and safeguard money.

Millions get negative rates because often banks give no interest on checking accounts.  Banks also charge monthly fees on these accounts.  After taking into account the fees and other surcharges the bank is effectively charging depositors for leaving money in the bank.  By stating that this is a fee, not a negative interest rate, banks avoid bad publicity.  Nevertheless, a monthly fee plus a zero percent rate means you are paying the bank to hold on to your money, which is the definition of a negative rate.

Anyone who deposits money in these accounts will see the absolute value shrink over time.  These fees effectively give the accounts a negative interest rate, which means negative rates exist quite often and are not just a headline worthy story!

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