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The Banks That Charge Interest to Rich Savers

The current economic conditions and low interest rates have forced banks to find new, creative ways of making money. One of these ideas has threatened to turn the traditional banking relationship on its head.

We are used to banks charging interest on loans and paying out interest to savers. It is easy to imagine that the richest customers rake in a handsome profit on the interest from their deposits. Yet, the truth is that some banks are planning to start charging interest to them, rather than paying it out.

The Background

The countries where this new approach has been reported to be in operation already are Denmark and Switzerland. In both countries, the interest rate has moved into negative figures, as the authorities look to kick-start the slow economies.

In Switzerland, the interest rate is currently sitting at -0.75%. It is expected to stay at that figure for the foreseeable future. The Swiss National Bank stopped using Libor earlier in 2019, moving to their own system that is similar to those used in the UK and the US. 

In Denmark, some banks are offering mortgages to customers at an interest rate of -0.5%. This is because the official interest rate in the Scandinavian country is sitting at -0.65%.  So, anyone taking out a mortgage at this rate actually only needs to pay off less the full amount to clear the mortgage. As with Switzerland, it is expected that the negative rates will continue for some time into the future.

This is definitely a good time to borrow money. The low interest rates mean that paying back loans is easier than ever before. Nevertheless, there is still a demand for international commercial debt recovery services in those cases where a borrower is unable or unwilling to repay the loan.

How Does It Work for High-Value Savers?

Another aspect of the negative interest rates is that savers no longer get rewarded for keeping money in a bank account. Many banks offer either a 0% rate or a minimal figure on their savings accounts.

Yet, the biggest change has been the introduction of a negative savings rate for wealthy clients. Some Danish and Swiss banks have moved to introduce a negative interest rate on accounts with large sums in them.

This means that the saver is paying the bank to hold onto the money for them. The interest rate charged is typically around the level of the official rate. For example, in Denmark a rate of -0.6% for accounts with more than 7.5 million Krones (£920,000) has been reported. 

Will This Happen Elsewhere?

There are a few other European countries that have interest rates that are either negative or close to it. For instance, Sweden is at -0.25% just now, having introduced negative interest rates in 2015.

It is clear that novel banking solutions are needed in any country that has negative rates. Therefore, it will be interesting to see whether other countries follow the lead of Denmark and Switzerland or find a different approach to take.