Negative Interest Rates

Negative Interest Rates

IMO (In my opinion) we will be seeing negative or zero interest rates in Canada within the next 2 years, and this is why you should look at refinancing to lower your payments right now.

Firstly: 

Why negative interest rates?

In bad economic times people and businesses tend to hold on to their cash while they wait for the economy to improve.

This can weaken the economy even further, as a lack of spending causes further job losses, lowers profits, and may cause prices to drop.

As spending slows even more, prices drop again, creating another incentive for people to wait as prices fall further. And so on…

The negative interest rate is meant to be an incentive for banks to make loans during a period in which they would rather hang on to funds. 

Why not negative interest rates? 

The thinking is that negative rates would boost the economy by encouraging consumers and banks to take more risk through borrowing and lending money. 

Bank of Canada Governor Tiff Macklem said negative interest rates remain an option, even if policy makers aren’t currently considering such a move. (Right now)

Interestingly, Government debts will also benefit from negative or Zero interest rates.

Currently there are other countries that have implemented negative or Zero interest rates.

These countries are

  • Switzerland
  • Denmark
  • Japan
  • Sweden
  • Spain

The Bank of England has moved closer to adopting a negative interest rate policy. The central bank has asked commercial banks in the U.K. to provide details of how ready they are to deal with negative interest rates

How it works

With negative interest rates, cash deposited at a bank yields a storage charge just like rent.

So you might wonder who would keep money in a bank when there will be a loss every year?

Well, think

  • Pension funds
  • Insurance companies
  • Unions
  • or any organization that needs to hold onto cash in a secure way.

These organizations will pay a fee (Negative interest) to ensure that their funds are held securely.

Theoretically, this dynamic should trickle down to consumers and businesses…Theoretically.