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Old 06.03.2015, 09:48
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Negative interest rates - first retail banking reaction

Well, it finally happened today. I got a note from Interactive Brokers, telling me that it will now charge negative interest on CHF balances (admittedly over 100k). This is the first I've seen the negative interest rates trickle down to individual investors rather than just corporates...

Here's the letter I received:

Quote:
As a result of the recent decision by the Swiss National Bank (SNB) to impose negative credit interest rates to their member banks, the money market response has led to de-facto negative rates on CHF balances for most financial institutions even beyond the SNB's direct participant banks.

To stay aligned with CHF money markets, IB will commence with a parallel negative rate interest structure commencing February 1. We will retain the zero percent rate for smaller deposits up to 100,000 CHF to recognize that smaller investors may have less flexibility to find alternative investment opportunities. Larger balances will be subject to a rate structure as follows:

Credit Balances
Credit Interest Rate
0 - 100,000 CHF: 0%
100,000.01 - 1,000,000 CHF: -0.50%
Over 1,000,000 CHF: -1.00%

Please note that a negative interest rate on a positive currency balance means that you will actually pay interest to keep Swiss francs with IB (this is because IB, in turn, must pay interest to the banks in which it keeps our clients' Swiss francs).
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Old 06.03.2015, 10:15
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Re: Negative interest rates - first retail banking reaction

So you are paying the bank to play with your money to make their millions of profit? How can this be even legal? Won't people take their savings out of banks & cause banks to crash?
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Old 06.03.2015, 10:30
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Re: Negative interest rates - first retail banking reaction

IMO it's only a matter of time. Once one bank starts, the rest will likely follow.

Our plan: Pay off the mortgage, move the rest back to the US. We've put up with a lot here in the Hochpreisinsel, but paying to keep our money is the point where the scales tip.

ETA:

Until US banks follow suit, that is.

At which point it all goes under the mattress. Or into isolated farmland, canned goods, and a potable water supply.

Last edited by meloncollie; 06.03.2015 at 10:54.
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Old 06.03.2015, 11:10
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Re: Negative interest rates - first retail banking reaction

As bad as the banks are, they still have to make enough profit to pay for their overheads. The government central bank has applied negative interest rates, and it would seem the best way to go to avoid losses with deflation on the horizon. They want you to buy something, and not keep cash in the bank. So why not buy some long term government bonds?
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Old 06.03.2015, 11:17
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Re: Negative interest rates - first retail banking reaction

The rate on long terms bonds are not very attractive, I don't to see any signs that it will shift to something worthwhlie anytime soon either.
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Old 06.03.2015, 11:24
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Re: Negative interest rates - first retail banking reaction

Everyone says the stock markets will again crash very soon, so apart from a small Swiss mountain chalet, can you think of anywhere else to keep your cash?
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Old 06.03.2015, 11:34
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Re: Negative interest rates - first retail banking reaction

The UK.
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Old 06.03.2015, 11:43
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Re: Negative interest rates - first retail banking reaction

So I guess some people will be splitting their balances across multiple banks, or multiple family members?

Is that a naive / obvious workaround or am I missing something here? I guess that could be a problem if your liquid assets total something over CHF 500'000 or even CHF 1'000'000....

I guess there's always under a mattress... though let's hope burgulary doesn't shoot through the roof. I guess those CHF 1'000 cash notes actually have a purpose...

I come from Australia - near nil interest on savings is not unusual, but negative interest rates will likely get you run out of town on a rail, with interest forthcoming. Of course, inflation in Australia has been around 2-3% p.a. for years.
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Old 06.03.2015, 11:46
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Re: Negative interest rates - first retail banking reaction

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Everyone says the stock markets will again crash very soon, so apart from a small Swiss mountain chalet, can you think of anywhere else to keep your cash?
They always say this - that's why they are called perma-bears. Eventually they will be right too, and there'll be a great media circus about how they predicted the crisis oh-so-precisely. The previous 2 dozen crises they predicted but didn't materialize are ignored.

If I went short stocks every time someone tells me that the market is about to crash, I'd have long gone bust.
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Old 06.03.2015, 11:48
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Re: Negative interest rates - first retail banking reaction

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Everyone says the stock markets will again crash very soon, so apart from a small Swiss mountain chalet, can you think of anywhere else to keep your cash?
20 Minuten suggests safe deposit boxes. Apparently you can fit 1,000,000 in the smallest safe deposit box if you use only 1000 notes:

Schweizer 1000-Franken-Noten sind mit einer Fläche von 18,1 cm mal 7,4 cm und einer Dicke von rund 0,1 mm äusserst platzsparend. Ein Notenbündel im Wert von 100'000 Franken ist gerade einmal 1 Zentimeter hoch und nimmt einen Platz von rund 0,0133 Litern ein. Sogar in den kleinsten Schrankfächern von Schweizer Bankfilialen hat es Platz für deutlich mehr als eine Million Schweizer Franken, wie Moneyland vorrechnet.

http://www.20min.ch/finance/news/sto...vzins-30687716

I'm guessing that safe deposit box rental costs will soon skyrocket...




Being serious, though - this Tagi article discusses how negative interest rates already charged to institutional customers could have repercussions for health insurance premiums and retirement funds: (Comments section makes for interesting reading...)

http://www.tagesanzeiger.ch/wirtscha...story/20893104

Interesting times ahead.
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Old 06.03.2015, 11:49
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Re: Negative interest rates - first retail banking reaction

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So I guess some people will be splitting their balances across multiple banks, or multiple family members?

Is that a naive / obvious workaround or am I missing something here? I guess that could be a problem if your liquid assets total something over CHF 500'000 or even CHF 1'000'000....
We're talking about cash, not liquid assets. And Interactive Brokers is a brokerage, not a bank. So I suspect that there aren't too many people who are keeping big cash balances on hand. There may be plenty of individuals who have six-figure investment portfolios, but I would be surprised to find that there were many retail investors who had six-figure CHF cash balances at the brokerage.

For me, most of my investing is in US stocks and therefore most of my cash holdings in my brokerage account are in USD. My CHF exposure is pretty limited.
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Old 06.03.2015, 11:59
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Re: Negative interest rates - first retail banking reaction

You can think of interest rates as a proxy for the differential appreciation of currencies. So if you're thinking of moving to another currency does the interest return compensate for any expected depreciation against CHF? (Same question with using a safe deposit box or stuffing it under your bed - what are the costs of that?)
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Old 06.03.2015, 12:40
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Re: Negative interest rates - first retail banking reaction

I don't imagine that the commercial banks would do this, at least not for small deposits. The customers will just leave.
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Old 06.03.2015, 12:49
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Re: Negative interest rates - first retail banking reaction

So, does that apply to all Swiss Banks now? And is that only for foreigners with Swiss bank accounts or all account holders?
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Old 06.03.2015, 13:27
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Re: Negative interest rates - first retail banking reaction

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So, does that apply to all Swiss Banks now? And is that only for foreigners with Swiss bank accounts or all account holders?
AFAIK, Swiss banks have so far only hit large commercial or institutional clients with negative interest rates.

As VI said upthread, his post refers to a brokerage account, not a bank.

But...

As negative interest rates percolate through the system, as they become 'the new normal' will private clients of regular banks be affected as well? That's the big question.

---

An interesting summary:
http://www.swissinfo.ch/eng/the-nega...owth-/41308560
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Old 06.03.2015, 14:02
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Re: Negative interest rates - first retail banking reaction

The negative interest rate trend started in Denmark beginning February

http://www.wsj.com/articles/danish-l...tes-1423576590

I say just spend your money while you still can!!!
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Old 06.03.2015, 17:07
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Re: Negative interest rates - first retail banking reaction

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So, does that apply to all Swiss Banks now? And is that only for foreigners with Swiss bank accounts or all account holders?
I think you need a lot of money before you need to worry, (think 8 figures +, = double digit millions)
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Old 06.03.2015, 17:40
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Re: Negative interest rates - first retail banking reaction

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The negative interest rate trend started in Denmark beginning February

http://www.wsj.com/articles/danish-l...tes-1423576590

I say just spend your money while you still can!!!
Quote:
“That is the reaction we expected. It’s not a run on the bank, it’s not all clients but we have seen more activity in our customer service department than we usually have,” Mr. Nordahl said.

He added that the bank’s own analysis shows it has enough liquidity to stay solvent even if it were to lose all of its deposits.
I guess so long as they can deal with losing all deposits, then they are OK to do this. However, if the Swiss banks charge an annual fee, then this could cover many small depositors.

Also, losing a customer might be more damaging in the medium long term.
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Old 13.11.2016, 22:57
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Re: Negative interest rates - first retail banking reaction

Ir finally happened - negative rates in ordinary swiss banks!

Postfinance will start charging 1% soon: http://www.srf.ch/news/wirtschaft/po...er-millionaere
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Old 14.11.2016, 09:48
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Re: Negative interest rates - first retail banking reaction

Well if you have 1 mil in cash and in PF then serves you well.
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