What are negative interest rates? When holding money costs money
By SendPay Business · · 2 min read
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Negative interest rates mean a central bank charges commercial banks for keeping spare money on deposit with it, rather than paying them. The aim is to push banks to lend more and to weaken the currency, supporting growth and inflation.
Where they were used
- The European Central Bank cut its deposit rate below zero in June 2014 and kept it there until 2022.
- The Swiss National Bank used a rate of minus 0.75% from 2015 until 2022.
- The Bank of Japan introduced a negative rate in 2016 and ended it in March 2024.
- Denmark and Sweden also used negative rates for several years.
What it meant for savers and banks
Most banks avoided charging ordinary savers, but some charged businesses and wealthy customers for large deposits. Bank profits were squeezed, because the gap between lending and deposit rates narrowed.
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The effect on currencies
Low or negative rates make a currency less attractive to hold, which can weaken it. The Swiss franc and Japanese yen were often borrowed cheaply to fund carry trades in this period.
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Questions people ask
What is a central bank base rate?
The rate a central bank sets that steers borrowing costs.
Base rates →What is quantitative easing?
When a central bank creates money to buy bonds and lower long-term rates.
Quantitative easing →What is a carry trade?
Borrowing in a low-rate currency to invest in a higher-rate one.
Carry trades →Read next
Spotted a mistake or something out of date? and we'll fix it. How our guides are made
This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. Other companies named in this guide are reference points only and are not affiliated with SendPay Business.