What is negative interest rates?

[Jamesiv1]

I really don't understand negative interest rates and what it means to the economy.

Can someone enlighten me a little bit?

[kfarnan]

it means you (lender) are paying the borrower to hold your money.

[Jamesiv1]

it means you (lender) are paying the borrower to hold your money.

ahhh.

it works both ways though, right? I just read a couple of articles.... seems controversial, but Europe is giving it a try.

Looks like a depositor would pay the bank to hold his money, conversely a bank would pay a borrower on his loan - instead of the other way around.

Sound about right?

reading Google bomb... it seems like economists are wary of the impact, but I've read here in the forum that it is a sure sign of trouble. hmmmmmm....

[staerker]

Negative interest rates are what happens after you screw with the market for so long (to no avail,) that you simply lose you mind.

http://www.investopedia.com/articles...rates-work.asp

Interest rates are generally assumed to be the price paid to borrow money. For example, an annualized 2% interest rate on a $100 loan means that the borrower must repay the initial loan amount plus an additional $2 after one full year. On the other hand, a -2% interest rate means the bank pays the borrower $2 after a year of using the $100 loan, which is a lot to wrap your head around.

While negative interest rates are a great incentive to borrow, it's hard to understand why anyone would be willing to pay to lend considering the lender is the one taking the risk of a loan default. While seemingly inconceivable, there may be times when central banks run out of policy options to stimulate the economy and turn to the desperate measure of negative interest rates.

[Zippyjuan]

Currently negative interest rates only apply to rates the banks can borrow money from their central bank at. Bank customers are not being charged negative interest rates on accounts. Due to high demand relative to supply, some bonds are also currently paying negative yields.

The goal of negative interest rates is to discourage holding onto money- in this case, to encourage the banks to loan it out.

[openfire]

I really don't understand negative interest rates and what it means to the economy.

Can someone enlighten me a little bit?

They're essentially attempting to inflate the debt away by debasing currency.

[openfire]

I really don't understand negative interest rates and what it means to the economy.

Can someone enlighten me a little bit?

It also means that all asset prices will rise in nominal terms and that savers will be ruined unless they convert fiat into hard assets.