Think about how ridiculous this is for a moment. It's an easy loophole, and just more red tape and a bother. That's also not really the issue though. The problem is rates in general. Trying to spur growth into a system where there is none. Forcing speculative investing because of poor central banking policies and tough economic conditions. Ultimately the backlash from this will be worse than if central banks had avoided interfering in the first place. However, the interference has allowed a free-for-all in inflation and asset repricing to attempt to shift the debt they created away from themselves and increase wealth for those with assets. So in a sense, it's working. Robbing Peter to pay Paul. No one should be under the assumption anything else is happening here with these policies.
For a central bank there's no such thing as no policy. Even inaction is a policy.
(Of course, there are systems that work without a central bank. And can work very well in fact. But that's not what the Dutch as part of the Euro zone have.)
I don't know about other countries, but this country is absolutely full of such loopholes and my parent is a master at exploiting them.
My entire family s moving assets around in creative ways as to save money. In anticipation of my the death of my grandparent, he is now loaning money to his children in the legal sense to avoid inheritance tax so that when he dies they don't have to pay it. — All of this is legal, and it is silly.
This is being practiced successfully throughout the world since the Great Depression times. Would love to hear when do you expect this system to collapse?
>That people’s “time preference”, impatience, cannot be negative in the long run — and hence the possibility of negative real interest rates is not needed.
How does time preference become negative? Aging populations consist of people who need to work now, because they cannot work later. Alternatively, rich people at the top consider money a measure of wealth and optimize it like a high score. Third cause. Banks have written an excessive amount of money losing bonds and the money they have issued does not actually reflect the losses in the bond market (2008). In other words, people use money to isolate themselves from losses in the real economy because it is insured by the government.
I will say this: Over the long term interest rates are not set by banks, not even the central bank. It is primarily the availability of solvent borrowers. Companies essentially offer an investment opportunity to the bank and promise a fixed rate of return. The banks purpose is to price risk, effectively it is determining whether that promise is the real deal. The fact that low interest rates have not lead to inflation simply means that there are no solvent borrowers at that level of interest.
Here is a perverse fact about deflation: Once you have deflation, money itself provides a risk free rate of return that competes with labor (the thing that backs debt based money) for capital. When there is deflation there is no market mechanism that can determine an interest rate that balances credit (savings) and debt (borrowing). According to the Friedman Rule [0] the best interest rate is 0% and it is assuming no inflation or deflation. When you have deflation interest rates must become negative.
When 99% of people realise that they've essentially been scammed by the reserve banks, the backlash is going to be massive. There will be discussions about asset seizures and wealth redistribution. That's just a matter of time now. The cryptocurrency crowd knows this and wants this. They're helping to accelerate this. Guess what asset is hard to seize?
The masterplan is this: Let the banks mess things up, ruin people's trust in their governments and in capitalism, you move to a country that's unlikely to fall to communism, HODL your crypto, then wait it out then watch your crypto price moon as capitalists desperately try to flee into crypto to protect their wealth while their home countries fall to communism.
Negative rates have been around since 2014. And this "trick" of opening multiple bank accounts has been exploited across the EU for pretty much the same period of time.
For example, I've frequently done business with German companies. They don't even hide it. It is not in the slightest bit uncommon to receive an invoice with four or five EUR bank accounts printed on it. You can randomly pick your "preferred" account to pay to and the company's accountant will rebalance the accounts at the end of the quarter (or wahtever).
Multiple accounts on German invoices do not necessarily result from "tricks" to avoid negative interest.
Sometimes they result from a time where it took several bank working days to process a money transfer between different banks. Having bank accounts at banks with large customer bases (e.g. Sparkasse, Postbank, ..) allowed for quicker money transfers from these customer to the company. A customer could choose any of these bank accounts to settle the invoice.
Of course, a company could and can also have bank accounts not disclosed on an invoice.
Edit: Also note, that negative interest especially for major "online" banks just became a thing in Europe recently. Therefore, I think it is not only Entrepreneurs who redistribute their assets to avoid negative interest eating up their savings in addition to inflation, but also normal people.
Having multiple bank accounts isn't usually a thing to avoid negative interests in Germany. It's that payments between banks took three days to settle (I think they're down to 1 day now), while payments between accounts at the same bank usually settled immediately.
It's much easier to have multiple accounts with the largest banks so most of your customers can use bank-internal transfers.
Also, it's usually a good idea to have a backup just in case something goes wrong with your primary bank account. Dealing with bureaucracy is bad enough, dealing with it while you're also unable to send or receive payments is way worse.
Historically, multiple bank accounts at different banks in Germany were a way to speed up payments, in a time when wire transfers were dependent on local distance and different banking networks which exchanged wire transfer data on magnet tape in central bank parking garages (and thus were called "Garagenverfahren"). Which ended not too long ago, IIRC in 2006... If you wanted the invoice to lead to cashflow quickly, you asked the customer to pay to an account that would speed up payment.
> It is not in the slightest bit uncommon to receive an invoice with four or five EUR bank accounts printed on it. You can randomly pick your "preferred" account to pay to and the company's accountant will rebalance the accounts at the end of the quarter (or wahtever).
Why ask the customer to pick? Why not generate invoices with a randomly picked bank account (which can also lend itself to automatic rebalancing)?
Having a hard time calling this "exploiting" in a country where having different accounts with different banks is just something you do. Why would you have a single account with a single bank? Unless your account costs you loads of money instead of the banks going "thanks for your money, it's ours to invest how we see fit and profit off of, even if in theory you could withdraw it at any time. Which you won't". The dutch banking system is literally a foreign concept to North America. Imagine free accounts, free transfers to and from other banks, free ATM use, and not needing a credit card because banks actually did all the things that credit card companies put "on top of bank accounts" in the US. It's such a completely different system that analyzing the NL banking model with a pair of US glasses on just makes no sense at all.
Business idea: take in cash deposits. Hold the cash as paper currency in a vault. Avoid negative interest rates. After you build up enough deposits, start making loans to make money. Maybe if you make good loans you could even pay some interest to your depositors. I’ll call it “Bank.”
Ok, so how are you making money to sustain your operation? Presumably you are a business, not a charity. Your vault isn't free, neither is the land it sits in, and as you gain more customers your security costs are going to increase. Also your customers are going to want convenient withdrawal and deposit options, so you will need multiple vaults in different locations (plus security measures). Not to mention the overhead you'll need to run this business (accountants, HR, IT, asset managers, etc). Thus there is a degree of scaling to your costs. This is fine though, just subtract these costs from the revenue generated by your investments. Your simplified business model looks something like this:
Only you have to have sufficiently liquidity such that your customers can get withdrawals whenever they want. This means your investment pool is going to be conservative, thus limiting your returns. Now what happens when your nation's central bank craters interest rates, thus driving your investment returns down? Oh shit, now the revenue source is drying up. What gives? Profit, or your interest rates? Well profits have to be at minimum high enough to justify all this effort, so looks like the interest rates are going to drop and drop and drop as the cost of money goes down....
Congratulations, you are now in the same place as all those other institutions. Who would have guessed that an identical business model subjected to all the same economic push and pulls would end up at the same destination.
I know you're being funny, but for most of history real (as opposed to nominal) rates of return on cash have been negative. Sure, you wouldn't be paying the bank interest, but you'd be paying for storage, security if you have enough, losses on rodents eating your cash, etc. Positive rates of return are actually quite a new phenomenon.
Regulations require you to buy government bonds, you can't hold much cash. European safe govt bonds all pay negative rates. Plus Europe is awash with cash so its hard to make loans. Just another reason all Euro banks are struggling.
Banks don't loan out deposits. Banks create deposits by issuing loans.
So to start a Bank you don't need any deposits, and in a negative interest rate environment you don't need to chase them. Deposits backed by 'cash' will automatically come to you in the backfill process (which is how the deposits created by loans can be used to pay people at other banks).
That's how negative interest rates stimulate loans.
It's worth pointing out that never in all of world history has such a large percentage of sovereign debt yielded a nominally negative rate.
Where this ends is anybody's guess. But when the situation finally does resolve itself, it seems reasonable to expect economic and social dislocation both qualitatively and quantitatively beyond anything ever seen before.
The incremental manner in which the GFC continues to play out has numbed most people to the danger they are in.
This does not work in Denmark.
Banks know officially whether your bank account is your "living wage" bank account or not.
If you have a bank account that is not the 'wage deposit' account, banks have started charging a premium for HAVING an account with them.
I used to have several accounts, but since they've started with this extra-fee crap, I have closed all except my main account, because the fees would eat the deposited money.
There may be ways around it, but I haven't found it.
"Negative interest rate" is such an Orwellian term. Let's just call it what it is, the government penalizing you for not spending your own money as fast as they think you ought to.
It's not entirely true that this is caused by the ECB. In fact, only 10% of a typical German bank account (Sichteinlagen) are required to be held with the ECB. For other countries it might be even less (minimal reserve is 1%). Out of these 10% the bank gets charged no interests on the first 6% (six times minimal reserve).
So if you have 100k€ in the bank in Germany, that bank has to pay for 4k€ - that's just 20€ per annum and charges you 250€ (assuming a typical 50k€ exemption). At the same time they can lebd out 90k€ at a market rate of 1.5% to finance some housing. That's 1350€ revenue per annum. So in this simplified, idealized case, the bank just asks you to increase their revenue by 17% out of your own pocket.
The only case when the bank has to pay more is when they don't hand out enough credits and whose fault is that, frankly? Who should carry that risk?
I find this weird. How can you possibly have negative interest on a savings account? That means it’s quite literally better to withdraw all of your excess cash and stuff it in an old sock…
Because if you put it in a sock, you risk it getting stolen or lost in a fire. And it's more of a hassle to pay with it. So the negative interest rate might be worth the safety and convenience of your bank account.
As for the reason: it currently costs the bank money to have your money (ECB interest rate on overnight loans is negative), in addition to the costs of operating the bank itself.
I am in finance and literally struggled to wrap my mind around this last year, until a proper fixed income trader explained this to me and I'll explain it the same way.
Last year, oil futures prices turned negative. Which means "wait, I can take delivery of oil AND get cash for it too." So why didn't people do this? Because there's a cost of cary to oil - I need to pick it up in a train car at a specific place in the US and I need to store it somewhere, which is expensive. So while they were "paying you to take the oil" you couldn't really just jump on it and do it.
This is an analogous situation to what's going on with a negative interest rate. You're right, you're literally better off taking the money out into a pile of cash. And if you only have a few thousand bucks you could just do that (but then you need to drive to the bank, figure out how to store it, drive back when the rate goes back up, etc.) But if you have a few hundred thousand bucks - what are you gonna do? Cash it out in hundreds and keep it in your garage? At some point the logistics and theft risk of that adds up too.
Meaning, similarly to the oil example, while the raw numbers indicate one strategy, the practicality of carrying the asset on your own tends to outweigh the benefit. So yeah, someone may chose to incur negative interest if their only other option is to pile up cash in the house where they have to worry about it being stolen, burning in a fire, etc.
Why should guarding your money be free? The concept of negative interest is very natural.
Banks have found ways to reinvest your deposits. If the earnings there are higher than the storage costs they can share some of the earnings with you. But if they can’t, they have to charge for their service.
Most people don't own a savings account because it is profitable. They do it because it us a valuable service. It provides an easy way to store your money that is secured by 'this collapsing is an exustensial threat to the government'. It also provides access to the financial system.
I would be willing to pay a lot of money for such a service. Of course, given that I already need it, I might as well choose a cheap option. If that cheap option happens to have a negative cost, I'm not going to complain.
This is going to probably not be received well given HN’s famously visceral hostility to crypto… But you can get 5%+ yields on Euro stablecoins in DeFi. And I’m not talking fly by night ponzi pools. This is like on battle tested bluechip protocols like Curve on Uniswap.
Is the risk zero? No. Should you put all your funds there? No. But parking a small segment to balance out the negative bank yields is pretty attractive from a risk reward standpoint. If you’re getting negative 0.5% at the bank, you can protect your capital from decaying by moving 10% or less of your cash savings into DeFi.
How does the housing market work in countries with negative interest rates, I am assuming the home loan rates are very very low so does that lead to a boom in house prices?
The housing market in the Netherlands is a complete train-wreck for almost a decade. The climate crisis pressing down on the ability to build new houses, the negative interests rate and a flailing government makes matter consistently worse. In Q1 2021 the prices rose with almost 12% compared to previous year, and the prices are rising almost quicker and quicker by each month, with no clear end in sight.
Yes, the loan rates are on a historical low, but have been already for a few years now.
This is not unlike the practice in the US of opening accounts at multiple banks to keep the balance below the FDIC insurance limit (currently $250,000).
Is that because banks are allowed to print money as they wish?
I mean, what became of the business where entrepreneurs go to a bank and loan money to finance building new ventures? For that the bank needs money, right?
So I guess that they don't want money from customers anymore means they get it from elsewhere. Probably from the government in the form of permission to print money?
Does anyone _not_ have multiple bank accounts? It makes sense, not just because of negative interest rates, but for when things like a bank's IT systems going down.
At least in the UK, you're typically not charged for having a basic bank account; fancier ones do have monthly charges.
Clueless here. What’s the point of a negative interest savings account? It seems about as good keeping cash under the mattress and burning some at the end of the year.
Bank fee income will definitely go up as they are typically set at flat level and not linked to the deposit amount. Could it be that increased fee payments effectively undo the strategy of avoiding the negative rate?
Remember, you can beat the system, but you can't beat the house...
[+] [-] intothev01d|4 years ago|reply
[+] [-] eru|4 years ago|reply
For a central bank there's no such thing as no policy. Even inaction is a policy.
(Of course, there are systems that work without a central bank. And can work very well in fact. But that's not what the Dutch as part of the Euro zone have.)
[+] [-] Blikkentrekker|4 years ago|reply
My entire family s moving assets around in creative ways as to save money. In anticipation of my the death of my grandparent, he is now loaning money to his children in the legal sense to avoid inheritance tax so that when he dies they don't have to pay it. — All of this is legal, and it is silly.
[+] [-] viktorcode|4 years ago|reply
[+] [-] imtringued|4 years ago|reply
http://rootbug.com/interstellar-oikeassa-aikaan-liittyvat-ol...
>That people’s “time preference”, impatience, cannot be negative in the long run — and hence the possibility of negative real interest rates is not needed.
How does time preference become negative? Aging populations consist of people who need to work now, because they cannot work later. Alternatively, rich people at the top consider money a measure of wealth and optimize it like a high score. Third cause. Banks have written an excessive amount of money losing bonds and the money they have issued does not actually reflect the losses in the bond market (2008). In other words, people use money to isolate themselves from losses in the real economy because it is insured by the government.
I will say this: Over the long term interest rates are not set by banks, not even the central bank. It is primarily the availability of solvent borrowers. Companies essentially offer an investment opportunity to the bank and promise a fixed rate of return. The banks purpose is to price risk, effectively it is determining whether that promise is the real deal. The fact that low interest rates have not lead to inflation simply means that there are no solvent borrowers at that level of interest.
Here is a perverse fact about deflation: Once you have deflation, money itself provides a risk free rate of return that competes with labor (the thing that backs debt based money) for capital. When there is deflation there is no market mechanism that can determine an interest rate that balances credit (savings) and debt (borrowing). According to the Friedman Rule [0] the best interest rate is 0% and it is assuming no inflation or deflation. When you have deflation interest rates must become negative.
[0] https://en.wikipedia.org/wiki/Friedman_rule
[+] [-] cryptica|4 years ago|reply
The masterplan is this: Let the banks mess things up, ruin people's trust in their governments and in capitalism, you move to a country that's unlikely to fall to communism, HODL your crypto, then wait it out then watch your crypto price moon as capitalists desperately try to flee into crypto to protect their wealth while their home countries fall to communism.
[+] [-] traceroute66|4 years ago|reply
Negative rates have been around since 2014. And this "trick" of opening multiple bank accounts has been exploited across the EU for pretty much the same period of time.
For example, I've frequently done business with German companies. They don't even hide it. It is not in the slightest bit uncommon to receive an invoice with four or five EUR bank accounts printed on it. You can randomly pick your "preferred" account to pay to and the company's accountant will rebalance the accounts at the end of the quarter (or wahtever).
[+] [-] cloogshizer|4 years ago|reply
Sometimes they result from a time where it took several bank working days to process a money transfer between different banks. Having bank accounts at banks with large customer bases (e.g. Sparkasse, Postbank, ..) allowed for quicker money transfers from these customer to the company. A customer could choose any of these bank accounts to settle the invoice.
Of course, a company could and can also have bank accounts not disclosed on an invoice.
Edit: Also note, that negative interest especially for major "online" banks just became a thing in Europe recently. Therefore, I think it is not only Entrepreneurs who redistribute their assets to avoid negative interest eating up their savings in addition to inflation, but also normal people.
[+] [-] luckylion|4 years ago|reply
Also, it's usually a good idea to have a backup just in case something goes wrong with your primary bank account. Dealing with bureaucracy is bad enough, dealing with it while you're also unable to send or receive payments is way worse.
[+] [-] darkerside|4 years ago|reply
[+] [-] DocTomoe|4 years ago|reply
[+] [-] blueblisters|4 years ago|reply
Why ask the customer to pick? Why not generate invoices with a randomly picked bank account (which can also lend itself to automatic rebalancing)?
[+] [-] lbarrow|4 years ago|reply
[+] [-] TheRealPomax|4 years ago|reply
[+] [-] viktorcode|4 years ago|reply
[+] [-] forgithubs|4 years ago|reply
[deleted]
[+] [-] nostromo|4 years ago|reply
[+] [-] SonicScrub|4 years ago|reply
Profit = Investment Returns - Operational Costs - Interest Paid to customers
Only you have to have sufficiently liquidity such that your customers can get withdrawals whenever they want. This means your investment pool is going to be conservative, thus limiting your returns. Now what happens when your nation's central bank craters interest rates, thus driving your investment returns down? Oh shit, now the revenue source is drying up. What gives? Profit, or your interest rates? Well profits have to be at minimum high enough to justify all this effort, so looks like the interest rates are going to drop and drop and drop as the cost of money goes down....
Congratulations, you are now in the same place as all those other institutions. Who would have guessed that an identical business model subjected to all the same economic push and pulls would end up at the same destination.
[+] [-] Naga|4 years ago|reply
[+] [-] zz865|4 years ago|reply
[+] [-] neilwilson|4 years ago|reply
Banks don't loan out deposits. Banks create deposits by issuing loans.
So to start a Bank you don't need any deposits, and in a negative interest rate environment you don't need to chase them. Deposits backed by 'cash' will automatically come to you in the backfill process (which is how the deposits created by loans can be used to pay people at other banks).
That's how negative interest rates stimulate loans.
[+] [-] aazaa|4 years ago|reply
Where this ends is anybody's guess. But when the situation finally does resolve itself, it seems reasonable to expect economic and social dislocation both qualitatively and quantitatively beyond anything ever seen before.
The incremental manner in which the GFC continues to play out has numbed most people to the danger they are in.
[+] [-] fifticon|4 years ago|reply
[+] [-] tharne|4 years ago|reply
[+] [-] jbverschoor|4 years ago|reply
[+] [-] choeger|4 years ago|reply
So if you have 100k€ in the bank in Germany, that bank has to pay for 4k€ - that's just 20€ per annum and charges you 250€ (assuming a typical 50k€ exemption). At the same time they can lebd out 90k€ at a market rate of 1.5% to finance some housing. That's 1350€ revenue per annum. So in this simplified, idealized case, the bank just asks you to increase their revenue by 17% out of your own pocket.
The only case when the bank has to pay more is when they don't hand out enough credits and whose fault is that, frankly? Who should carry that risk?
[+] [-] Aeolun|4 years ago|reply
[+] [-] y7|4 years ago|reply
As for the reason: it currently costs the bank money to have your money (ECB interest rate on overnight loans is negative), in addition to the costs of operating the bank itself.
[+] [-] xyzelement|4 years ago|reply
Last year, oil futures prices turned negative. Which means "wait, I can take delivery of oil AND get cash for it too." So why didn't people do this? Because there's a cost of cary to oil - I need to pick it up in a train car at a specific place in the US and I need to store it somewhere, which is expensive. So while they were "paying you to take the oil" you couldn't really just jump on it and do it.
This is an analogous situation to what's going on with a negative interest rate. You're right, you're literally better off taking the money out into a pile of cash. And if you only have a few thousand bucks you could just do that (but then you need to drive to the bank, figure out how to store it, drive back when the rate goes back up, etc.) But if you have a few hundred thousand bucks - what are you gonna do? Cash it out in hundreds and keep it in your garage? At some point the logistics and theft risk of that adds up too.
Meaning, similarly to the oil example, while the raw numbers indicate one strategy, the practicality of carrying the asset on your own tends to outweigh the benefit. So yeah, someone may chose to incur negative interest if their only other option is to pile up cash in the house where they have to worry about it being stolen, burning in a fire, etc.
[+] [-] naasking|4 years ago|reply
If a bank is forbidden from investing your money, and thus putting your savings at risk, then it costs them money to safely manage it.
[+] [-] enaaem|4 years ago|reply
Banks have found ways to reinvest your deposits. If the earnings there are higher than the storage costs they can share some of the earnings with you. But if they can’t, they have to charge for their service.
[+] [-] shric|4 years ago|reply
Also, an interest rate of -0.5% is not that much worse than 0% -- they're both a few percentage points below inflation.
[+] [-] gizmo686|4 years ago|reply
I would be willing to pay a lot of money for such a service. Of course, given that I already need it, I might as well choose a cheap option. If that cheap option happens to have a negative cost, I'm not going to complain.
[+] [-] imtringued|4 years ago|reply
[+] [-] zoobab|4 years ago|reply
Lafarge met with other banksters in a castle, and they had a big fight.
[+] [-] geewee|4 years ago|reply
[+] [-] andi999|4 years ago|reply
[+] [-] dcolkitt|4 years ago|reply
Is the risk zero? No. Should you put all your funds there? No. But parking a small segment to balance out the negative bank yields is pretty attractive from a risk reward standpoint. If you’re getting negative 0.5% at the bank, you can protect your capital from decaying by moving 10% or less of your cash savings into DeFi.
[+] [-] ewg4345h43|4 years ago|reply
Gas prices increased by 4% in just last 3 months:
https://www.mwv.de/statistiken/verbraucherpreise/
The most food prices increased by 5% - 20% in the last year:
https://www.az.com.na/nachrichten/nahrungsmittelpreise-gesti...
[+] [-] sumedh|4 years ago|reply
[+] [-] hetspookjee|4 years ago|reply
Yes, the loan rates are on a historical low, but have been already for a few years now.
[+] [-] martin_a|4 years ago|reply
Interest on saving accounts is < 1%, loans are cheap, so everybody's trying to buy houses right now. House prices are rocketing up.
There will be lots of tears and people will lose their home once this starts to change and the fixed rates run out on some of those very cheap loans.
[+] [-] dhosek|4 years ago|reply
[+] [-] ArtTimeInvestor|4 years ago|reply
I mean, what became of the business where entrepreneurs go to a bank and loan money to finance building new ventures? For that the bank needs money, right?
So I guess that they don't want money from customers anymore means they get it from elsewhere. Probably from the government in the form of permission to print money?
Let me know if I am wrong here.
[+] [-] technicolorwhat|4 years ago|reply
[+] [-] secondcoming|4 years ago|reply
At least in the UK, you're typically not charged for having a basic bank account; fancier ones do have monthly charges.
[+] [-] fmakunbound|4 years ago|reply
[+] [-] WalterBright|4 years ago|reply
Did anyone think this wouldn't happen?
[+] [-] remir|4 years ago|reply
[+] [-] streamofdigits|4 years ago|reply
Remember, you can beat the system, but you can't beat the house...