Negative Rates Are Coming for Your Savings

(Bloomberg Opinion) — First they came for central banks, then they came for government bonds, then they came for rich depositors. Then they came for me.

Negative interest rates are coming for us all, in one form or another, as central banks redouble their efforts to avert a global economic slowdown that threatens to unleash deflation. So how can we defend ourselves from the coming assault on our bank balances?

QuicktakeNegative Rates

Investors seem resigned to the new no-yield orthodoxy in fixed income. Norges Bank Investment Management, the world’s biggest sovereign wealth fund, revealed on Wednesday that it has reversed its longstanding bet that bond yields will climb.

And the government debt market passed yet another milestone this week, with Germany’s auction of the world’s first long-dated bond paying zero interest. Priced to yield -0.11%, buyers are guaranteed – guaranteed – to lose money if they hold the securities to maturity, after paying an average price of 103.61% of face value for notes that will repay at 100% in 30 years.

Of course, you are probably already exposed to negative rates if you have any money invested in an international fixed-income fund. Someone, after all, owns the $16.5 trillion of debt that yields less than zero. With pension funds effectively forced to buy, any money you put away every month to build your retirement nest egg is helping to fuel the bonfire of yields.

But the most direct threat that negative interest rates pose is to our bank accounts. In Switzerland and Denmark, the very wealthy are already being sanctioned. Jyske Bank A/S this week said it will charge Danish depositors with 7.5 million kroner ($1.1 million) or more in their accounts; earlier this month, UBS Group AG halved the level at which its annual 0.6% fee kicks in to 500,000 euros ($560,000).

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