Negative Interest Rate Environment

Negative interest rates are one of many telltale signs that a country is trying to boost its economy. The Bank of Japan and the European Central Bank are just two examples of several other smaller European banks that have ventured into the highly untrodden territory of negative interest rates. What exactly is a negative interest rate and how does one affect an economy? Before diving into understanding a negative interest rate it is best to take a look at interest rates before they dip into the negatives.

In the United States the Federal Open Market Committee sets interest rates. Interest rates are one many ways in which banks make money. According to Investopedia, “an interest rate is the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.”

Negative interest rates work exactly how they sound – the opposite of positive interest rates. Investopedia recently published an in-depth article on negative interest rates and their functions. The article had this to say regarding interest rates after they dip below zero percent:

Interest rates are generally assumed to be the price paid to borrow money. For example, an annualized 2% interest rate on a $100 loan means that the borrower must repay the initial loan amount plus an additional $2 after one full year. On the other hand, a -2% interest rate means the bank pays the borrower $2 after a year of using the $100 loan, which is a lot to wrap your head around.

In sum, whenever positive interest rates exist then the borrower pays the lender and whenever negative interest rates exist then lender pays the borrower.

With positive and negative interest rates present throughout the world’s economy a common question is what happens to the money sitting in banks while interest rates fluctuate, especially during times when negative interest rates are present? Investopedia wrote this regarding the money held within banks during times of negative interest rates:

A negative interest rate means 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. This is intended to incentivize banks to lend money more freely and businesses and individuals to invest, lend, and spend money rather than pay a fee to keep it safe.

Essentially, when negative interest rates reign then the safety of an individual’s money held in a bank drops dramatically. During this period of time many people begin to look for alternatives to where they might keep their earnings safe and secure. Are you interest in learning more about gold ownership and the security it can provide within a risk taking, unstable economy? More than one million users in 150 countries spend, save, and even earn in real gold using Goldmoney.                    Open Free GoldMoney Holding Today