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Normally, when you save money in a bank, it pays you interest. When you take out a loan, the bank charges you interest. These rates are set by the Federal Reserve and help guide the country's economic policy.
President Donald Trump wants to end this, saying that a negative interest rate would further stimulate the economy. What does this mean for bank accounts and loans while their cost or cost is related to these rates?
Interest rates have always been positive. If this were reversed and they became negative, then theoretically, the effects could also be negative.
"In a world of negative interest rates, borrowers are earning and being paid while savers are penalized," said Ryan Sweet, an economist at Moody's Analytics at NBC News.
Although no one expects rates to drop to zero or become negative at any time, Trump and some of the consumer credit giants have opened a door that was supposed to be locked for a long time. It's worth looking through.
Jamie Dimon, CEO of the largest US bank, JPMorgan Chase, gave an overview of what it might look like at a recent industry conference.
"I do not think we will have zero rates in the US, but we are thinking of how to be prepared as a normal course of risk management," he said.
Bank of America, the second largest bank in the country, also said that negative rates were a "possibility".
If loans become less profitable for banks, then they should increase their revenues, such as wealth management fees and mortgages. According to experts, this could result in higher fees for chequing accounts, overdrafts and ATM withdrawals.
Customers may also have to pay fees if they perform certain transactions, such as transferring money in person rather than online.
But do not worry about being charged by a bank to keep your money there. Any bank that does this would lose customers to other banks that would not have done so. In countries that tried negative interest rates, only large institutional investors were charged.
"For consumers, let's understand that interest rates are negative: no one will pay you to take out a loan," said Greg McBride, chief financial analyst at Bankrate, at NBC News.
In banks that have proposed a negative mortgage rate, the real impact of consumers is that the balance of their loan decreases more than they paid when they make their payments.
"For US mortgage rates to become negative, something has to go wrong with the economy," Sweet said.
Money market accounts could also ask customers to keep their money there, McBride said. However, for this to happen, it may be necessary to amend the law. It's not clear because it never happened in the history of the United States.
The reference rate set by the Fed aims to promote low-cost loans for consumers and businesses to boost borrowing and stimulate economic growth.
Miles Kimball, professor of economics at the University of Colorado, has repeatedly said that countries in deep recession and with low inflation would use negative interest rates. According to him, unemployment during the Great Recession would not have been so severe – and the economy would have recovered more quickly – if the Fed had applied negative rates to stimulate activity.
"If companies do not spend on building factories, buying machinery or doing research and development, and households do not spend to improve their living conditions, all those who try to produce and sell something are left to themselves, "he wrote. in a 2013 article on Quartz.
"Negative interest rates on unused cash would motivate those who would otherwise stay with this cash to take the risk to use them to grow the economy," wrote Kimball.
The professor would likely find a willing listener in the president, who triggered all the speculation in a tweet asking the Fed to reduce interest rates to "zero or less," and repeatedly attacked the central bank and Federal Reserve Chairman Jerome Powell. , calling for a more flexible fiscal policy to stimulate the economy.
While China, Japan and the eurozone countries have cut interest rates, economists believe that US rates are higher because its economy is stronger.
"Europe has had negative interest rates for five years. They were shocked five years ago and are still in shock today, "McBride said.
According to a recent survey, 74% of economists predict that America will fall into recession by 2021 and 14% think that it will come later. Economists blame the aging of the population and weak productivity growth, exacerbated by uncertainties surrounding the long-running trade war between China and the United States.
For now, the status quo that banks pay you to lend them money in the form of deposits and charge you when you borrow money seems safe in the short term.
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