At the moment, negative interest rates sounds totally obscure. Basically, the lender has to pay the borrower for lending money from him?!?

If this is the case, why shouldn't I just go out to take some loans right away? -- afterall, they are the ones who has to pay me. They [the lenders] are going to lose money, and I am going to earn money off the negative interest rates.

Obviously, I'm missing something...

What am I missing ?

  • 4
    Have you actually encountered a negative rate loan offer?
    – quid
    Apr 2, 2019 at 17:23

5 Answers 5


At the moment, there are a handful of countries that are selling bonds with slightly negative interest rates. Institutional investors are willing, in effect, to pay those countries to hold their money. In many cases, those investors hold those bonds not as investments but to hedge their risks. I am unaware of anyone that is offering to lend money to average people at a negative interest rate.

In theory, it could make sense to offer consumers loans at negative interest rates if the country was in a period of deflation that was expected to continue. As a practical matter, though, deflation tends to be a bad thing for the economy so if a real economy was in a semi-permanent deflationary spiral, it is unlikely that individual consumers would be good enough credit risks to make negative interest rates a thing.

Of course, I suppose it is possible that someone somewhere is offering a negative interest rate on a loan for a particular purpose as just a different way of offering a discount. A jeweler might offer, say, a -5% interest rate on a 3 year loan to purchase an engagement ring rather than discounting the price up front. That doesn't seem particularly likely-- the upfront discount would seem to be more attractive to the average consumer and easier for the retailer to explain-- but people and companies have been known to do unlikely things.

  • 1
    Top paragraph is the core answer - current negative interest rates are offered by governments or similar, not by banks to individuals. Apr 2, 2019 at 19:52
  • "In theory, it could make sense to offer consumers loans at negative interest rates if the country was in a period of deflation that was expected to continue." I think that "nominal" before "interest" would added needed precision. Apr 3, 2019 at 4:04

The main reason to avoid loans with rates that are too good to be true (usually zero percent, but conceivably negative rates) is that they are usually contingent on buying something and that something has the interest for the loan already built into the price.

In other words, if you are getting a great (too good to be true) rate on a loan, you are probably overpaying for the item that you are purchasing. To test this, ask if you can pay a lower price if you pay "cash".


The U.S. 30-year mortgage rate is about 4.0% while the U.S. 30-year Treasury bond is about 2.87%. The difference in what a home buyer can borrow at versus what the government can borrow at is due to credit quality.

The two-year German government bond is about -0.63%. But the average person can't borrow at -0.63% because of their credit quality.

There are a lot of ways to benefit from low interest rates but most situations require leverage and investment.

For instance, a sell position on the EUR/USD currency pair gets rollover interest at the U.S. rate minus the Euro rate or 2.5% - 0% = 2.5%. Then the Forex broker takes about 0.75% commission for a rollover interest net of about 1.75%. But that is 1.75% on the leveraged amount and leverage is available. Leverage is borrowing. Now the overall value of the position is speculative.

Now zero rate mortgages are available in a few countries and might be used for property in another country. But the bank fees combined with the interest rate of currency hedging would probably be as much as the U.S. mortgage rate. Without currency hedging then a change in the currency rate could increase the mortgage payment in value of the home currency.


Such loans will be subject to an additional condition. For example, the purchase of certain goods. And if we talk about the model of loans with a negative interest rate as a whole. Such a model may be justified in deflationary economies. When, over time, goods become cheaper and not more expensive (as is usually). In this case, it is advisable to push you to buy the product today, when it costs more than it will be tomorrow. But at the same time, the negative interest rate on the loan will still have to be lower (in absolute terms) than the percentage of deflation. And the general conclusion is that when buying money (taking a loan) you still have to pay for it. In one form or another.


Negative interest rates don't make much sense because the low-risk 0% investment called "bills under the mattress" is available to nearly everyone. The further inflation drops below 0, the more real interest a borrower has to pay to convince lenders it's worth raiding the mattress. Which is why countries generally don't let it happen.

Fortunately, inflation can be increased pretty much at will by printing money, which is also usually politically popular, so it's not hard to get out of the situation.

  • 1
    There's real costs to cash in the risk of loss (or equivalently insurance), the need to transport it in trucks, the need to count the cash when it comes in and when somebody accepts it, the need to store it in a vault, and the reluctance of others to accept huge quantities of cash because of these issues. These costs mean that it is cheaper to pay the central bank/government a certain amount, i.e. a negative interest rate, to keep your money than to take it out in cash.
    – user71659
    Apr 3, 2019 at 4:22
  • That's why I called it "low-risk" instead of "zero risk". Apr 3, 2019 at 5:19

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