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It makes no sense for an individual, since you can keep your money in an FDIC insured account and earn a positive interest rate. Institutions don't have that l
by wefarrell 7y ago
It makes no sense for an individual, since you can keep your money in an FDIC insured account and earn a positive interest rate.
Institutions don't have that luxury - the government doesn't insure large amounts of cash. If they keep it in a bank and the bank goes under, they lose their money. So they keep their money in national governments, which are far safer than banks.
- quantguy11959 7y agoIt’s positive for now, in Europe the deposit accounts are negative as well for the most part.
- nawitus 7y agoThey're positive for regular customers, but negative for large organizations.
- rocqua 7y agoI still get 0,05٪ interest! That is technically positive!
- quantguy11959 7y agoWhat’s 0.05% minus 1.5% inflation ? Negative
- basementcat 7y agoThere’s no requirement that FDIC accounts must pay an interest rate above 0%. It is perfectly legal to charge fees to fund the continued operation of the bank.
- gst 7y ago> Institutions don't have that luxury - the government doesn't insure large amounts of cash. If they keep it in a bank and the bank goes under, they lose their money. So they keep their money in national governments, which are far safer than banks. Due to the low interest rates German insurance companies are already considering to store cash in their own vaults instead of buying bonds: https://translate.google.com/translate?hl=&sl=de&tl=en&u=https%3A%2F%2Fwww.faz.net%2Faktuell%2Ffinanzen%2Fversicherungen-wollen-geld-in-tresoren-bunkern-16328231.html https://translate.google.com/translate?hl=&sl=de&tl=en&u=htt... Slightly negative interest rates work because physically storing cash is going to be more expensive than buying bonds (especially if you factor in costs for security, insurance, etc.). But if interest rates decreases further it's soon going to be cheaper to store cash, which is going to create a lower bound for the interest rate (assuming the government doesn't prohibit storing large amounts of cash).
- eigenvalue 7y agoMy guess is that these analyses by insurance companies don't properly take into account the risk of theft. All that cash in a bunker makes a very appealing target for thieves, both insiders and outsiders. Also, if it starts happening with any frequency, the central banks will just forbid hording of cash (e.g., by refusing to allow member banks to provide the cash if it exceeds a certain amount).
- outworlder 7y ago> My guess is that these analyses by insurance companies don't properly take into account the risk of theft. So your guess is that insurance companies, companies for which their entire business model revolves around risk management, are not taking into account something as mundane as risk of theft? That's a... curious line of reasoning.
- tim58 7y agoI bet they even have theft insurance.
- refurb 7y agoIf you’re an individual with a lot of cash that would be a pain to split up into accounts with less than the FDIC insured limit, then a negative interest rate might be attractive.
- toomuchtodo 7y agoWhile true, cash management accounts that'll insure up to $1.5 million in cash across many underlying banks is now a commodity offering (Fidelity, SoFI, Personal Capital, to name a few). As an individual, it's rare you're keeping more than that liquid.