What if a banks interest rates were so low, they actuallychargedyou to keep your money there?
And what if you could take out a loan without paying any interest at all?
Thats the idea behind negative interest rates.
Were sort of in uncharted territory with this concept, which is why its making headlines lately.
Heres a quick rundown of what negative interest rates are and what we can expect from them.
Theyre also less likely to save since theres no incentive to do so.
Their solution?Negative interest rates.
At the very least, consumers arent earning a dime for saving money in their bank accounts.
On the flip side, though, people can theoretically take out loans for free.
In short, negative rates can make saving money seem foolish, while borrowing can become epically attractive.
In general, pushing interest rates into the negative is a pretty unorthodox move.
Were not sure what will happen, but obviously, there are some concerns.
If rates are at zero, theyre not making any money.
And we dont want banks to fail, because thatusually royally screws up the economy.
AsCNBC points out, though, its not nearly that grim.
This tiered system is designed to limit the impact of negative interest rates on banks bottom line.
They point to Switzerland and Sweden as evidence that negative interest rates might be a good thing.
Negative Interest Rates in the U.S. For one, the Fedjust raised interest ratesrecently.
The underlying labor market has shown continued strength and consumption has been resilient.
Its too early to know whether or not negative interest rates are working for other economies.
In general, economists seem torn on themsome say theyre a terrible idea, others saytheyre already working.
At this point, only time will tell.
Illustration: Fruzsina Kuhari.
