0

I recently saw news that Danish bank Danske Bank is going to be offering -1% return on balances over $16,000. Obviously nobody wants a negative return on their balances so nobody is going to want this. Why is a bank disincentivizing their customers to hold balances with them? Does that have to do with central bank policies controlling the available returns that can be offered? If not, why would a bank be electing to do this themselves?

3
  • 1
    Does this answer your question? Why would I buy a Bond at a Negative Interest rate? May 2, 2021 at 18:46
  • 2
    It rather comes down to whether you think 1% of $16,000 dollars is better than losing it all if the burglars find it under your mattress doesn't it? I.e. if you have a large amount of money what risk free options do you have to keep it? May 2, 2021 at 21:16
  • 3
    What’s the difference between a negative interest rate and an account maintenance fee?
    – quid
    May 3, 2021 at 1:08

1 Answer 1

4

Because the Danish central bank is charging banks negative interest on the deposits they hold.

Current Danish central bank rates (accessed 2021-05-02)

Since the central bank is charging member banks for the assets they hold to be able to pay depositors, the banks don't want to incentivize customers to park assets with them and charge a negative interest rate in order to convince customers to move their assets elsewhere.

This is similar to what is happening in other European countries such as Germany at the moment where banks are unable to continue absorbing the negative interest rates they are charged by the central bank and are passing the costs on to customers in the form of negative rates on large balances.

3
  • Ok this makes sense. What does it say about the state of monetary policy/currency strength/national debt/etc... that the Danish central bank is charging banks those negative rates?
    – Runeaway3
    May 2, 2021 at 19:36
  • 1
    @Runeaway3 - That's likely a separate question and probably more appropriate for the economics stack. Danish interest rates aren't substantially different from the rates set by the ECB so most European countries are in roughly the same boat. May 2, 2021 at 20:25
  • The use of negative interest rates by central banks is to force banks to make more loans and stimulate economic activity.
    – RiverNet
    May 4, 2021 at 3:23

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .