The ECB has been lowering the interest rate on its deposit facility, first to -0.1% in June 2014, then to -0.2% in September and eventually to -0.3% in December 2015.

But what difference does it make whether it is -0.1% or -0.3%, as long as it is negative? I would expect everyone to withdraw all their money immediately as soon as the interest rate gets negative, for you would always be better off just keeping it for yourself, even if the interest rate was just -0.0001%.

I do understand the intention of the ECB, but I do not understand why lowering the already negative interest rate further should make it more effective.

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    This is more of economics question. Quite a few Countries [Govt] and Billionaire individuals can't keep that kind of money in home. They have to keep it at some place safe. Even large Banks can go bankrupt or face stress. So bonds from leading economics like US / UK / Europe are preferred as they are more stable. – Dheer Jan 28 '16 at 9:44
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    This maybe on topic for economics.stackexchange.com – Dheer Jan 28 '16 at 9:45
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    -0.1% or -0.3% For 100 euros is very minimal. But for billions, which the banks have saved at the central bank, it isn't unsubstantial amount. – DumbCoder Jan 28 '16 at 9:48
  • "I would expect everyone to withdraw all their money immediately" - the ECB isn't generally for individuals, it's for institutions. And for the kind of institution we're talking about, "withdraw[ing] all their money" isn't really an option. – AakashM Jan 28 '16 at 13:44
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    Is there enough paper cash to handle that conversion? If institutions such as banks have deposits on their books then there may be reserve requirements that keep them from having more money with the central bank. – JB King Jan 28 '16 at 15:47

The difference it makes is in the magnitude of risk difference people will need in order to overcome the amount they're paying to keep their money "safe".

For example, if someone charged me $100 to keep $10,000 of my money "safe", such that I felt very very confident in getting $9,900 back at the end of a year, I might go for that if the only alternatives are to move it somewhere where there's a good chance I get less than $9,900 back at the end of a year. In short, I might feel I lose less by paying that -1% interest rate.

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Because they believe that negative interest rates will force people to push capital around, and promote investment to avoid the negative interest rates associated with having your cash sitting in an account. Most likely they will be banning cash within the next 10 years anyway which will prevent you from being able to keep it yourself. You will either need to:

  • Invest it in assets not subject to this (even bonds will have very low, potentially even 0% interest rates if it goes much more negative)


  • Keep your money in countries without this policy
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  • Thanks, but, as I have already said, I do understand the intention. ;) The thing I do not understand is why the difference between -0.1% and -0.2% is significant. – proskor Jan 28 '16 at 9:30
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    If you had a loan, would there not be a difference between a one and a two percent interest rate? The higher the charge for holding your own money, the more incentive you have to move it. – William Dunne Jan 28 '16 at 9:46
  • If you had to choose between keeping the money for yourself and "lending" it to the bank for -0.1% interest, what would you do? And if the interest rate was -0.3% instead of -0.1%, would that somehow affect your decision? – proskor Jan 28 '16 at 10:01
  • Depends, most people have very little money in their account to lose. – William Dunne Jan 28 '16 at 10:13
  • We are talking about the deposit rate of the ECB. – proskor Jan 28 '16 at 10:14

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