The Bank of England has told commercial banks to prepare for the possibility of negative interest rates. This last hypothetical spanner in the toolbox of monetary stimulus — since rates are stuck close to zero anyway and quantitative easing through bond-buying programmes has diminishing effects — sounds weird and worrying but has already been in use in Europe for some time. Its intended effect is to push the commercial banks to lend more to business by penalising them for depositing cash with central banks. But what on earth does it mean for personal savers?
The fact is that all monetary policy since 2008 has been designed to stimulate moribund economies and keep companies alive on a broad front — with collateral impacts on individuals. Small savers have earned below-inflation returns on deposits, while those rich enough to own portfolios of blue-chip shares and bonds have become notionally richer as QE has boosted asset values. If official interest rates do turn negative, deposits might carry zero rates and be charged small fees — akin to the costs of holding gold bullion — but would still be worth keeping in the bank, rather than under the mattress, for the safety of the government’s £85,000 deposit protection scheme.
Beyond holding a rainy-day reserve, however, negative rates would be all the more reason to buy works of art or plots of land, back innovative start-ups or turn yourself into the Bank of Mum and Dad.
Buy and be happy
According to Rightmove, parts of Bristol have seen the biggest house-price rises of the past decade, up by 120 per cent. Perhaps that’s because Bristol’s reputation as ‘the UK’s greenest city’ makes it a magnet for the affluent eco-minded. And perhaps a low ebb of the Scottish oil industry explains why Nairn on the Moray Firth was the worst performer, with a 15 per cent average drop.
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