http://www.economist.com/news/finance-and-economics/21631140-interest-rates-turn-negative-some-worse-nothing
Deutsche Skatbank, a EU bank in Germany, plans to apply a negative rate of interest to instant access personal accounts that have a balance larger than $625,000. This is the first time that negative interest rates have been applied to personal accounts. The bank hopes to nudge savers into other longer-term, less liquid, or higher-return investments; the bank can make a profit by selling these investments.
The European Central Bank has been hoping to encourage banks to lend by charging a negative interest rate on specific depository accounts at the ECB. However, Germans accuse the monetary policy of spurring lending and economic activity without deeper fiscal and structural reform. Relations between the ECB and Bundesbank, Germany's central bank, are not good.
Regardless, the ECB has similar intentions as that of Deutsche Skatbank's: to encourage savers to switch to riskier assets and productive investment. Unfortunately, these intentions do not appear to be working as Germans have responded by saving less. Lack of investment is increasingly recognized as a national problem in Germany.
I think it will be interesting to see if Germans continue to save less and shy away from investment. If they place over $625,000 in a personal instant access account, they are essentially paying to have their money looked after. However, if they chose not to save and not to invest, their money fails to make any interest at all.
Now would be a good time for people in Germany that have a lot of euros in their savings accounts to start making investments. Lower interest rates lead to higher investment. The European economy has suffered this year, a poor relationship between Germany and the European Central Bank will not help. One solution to Germanys problem is to invest more money than save. Negative interest rates can't fall much further unless paper money gets abolished.
ReplyDeleteI wonder how much investment will change due to the drop in interest rates in Germany. It would be smart for people to invest while interest rates are negative so they can increase returns. It will be interesting to see what ends up happening with the amount of investment in Germany in the near future.
ReplyDeleteIt is interesting that Deutsche Skatbank is applying negative interest rates in hopes of encouraging investment, when the European Central Bank has been applying negative interest rates to banks lending ultimately to also increase investment. The ECB policy has not been effective so I'm surprised that Deutsche Skatbank would adopt a similar type policy. Germany definitely needs to find a way to correct their underinvestment but this does not appear to be the best way.
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