Negative Interest Rate

It would be interesting to hear Monzos point of view and what they would do if the Bank of England introduces negative interest rates.

I personally think that if this happens than cash will become more popular, but let’s see :slight_smile:

I’m doubtful you’ll see neg savings rates on small balances (< £100k).

In terms of driving people to withdraw cash for their mattresses, it’s possible, but hugely inadvisable. I might expect a mini (quite literal) gold rush as retail savers and investors pile money into gold derivatives products mis-marketed by opportunistic players as safe havens for your money. Ditto for crypto currencies.

The real issue is with continued uncertainty, equity markets still dislocated and the corp bond market looking equally unhappy with the health of many blue chip companies in serious doubt, capital preservation is going to be an even bigger challenge now.


Given that Monzo keeps most of the funds deposited with it at the Bank of England rather than investing or loaning it out like other banks, then negative interest rates will cause serious issues for Monzo.

They would effectively have to pay the BoE to leave money with them which is unsustainable for them.

This means either they will have to try and lend more out or something else to generate revenue.


I guess that is the logic of lower\negative interest rates

Hopefully Monzo do start lending more (safely), so to improve revenue

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Can’t they just hold onto it, they would get no money but it would not be costing them money.

If any bank charged me to hold money i’d either withdraw it as cash or just move it to somewhere that doesn’t.

Current accounts are most likley a safe haven in this case to hold cash without charge. (Safer than keeping cash at home)

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UK Banks have to hold at least some money with the Bank of England.

The following article gives some detail of what had happened in Switzerland where they have had negative interest rates for a number of years


Guessing its not the end of the world but it’s just depressing when you save all your money, have no debt and your punished for it. (I know normal people are not charged)

It’s depressing, i’d consider a US dollar account if they where offered with positive rates. (as personal savings would most likely pay nothing)


This is why I only keep an emergency fund in savings, or to set aside funds for a future large purchase. The rest of my surplus has been going on stocks for quite a while now which has done really well for me.

I don’t do gambling, that’s my problem.

Not even the lottery.


Understandable. Investing is not without risks. My portfolio took a tumble a few months back due to COVID-19.

The way I see it, it’s not cash I’m going to need, so the risk of losing it in the stock market isn’t much of a concern to me. I live pretty frugally.

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I reckon if central bank rates went negative to prevent deflation it would take the slightest fraction of a percentage point to push trillions back into the economy.

Companies like Monzo who hold all their money in limbo instead of moving it around would be encouraged to put it to work (yes they are required to have deposits with the boe but nowhere near as massive as they do).

A -0.1% boe rate would not affect retail customers like us much at all. Banks are paying us much higher than the boe because they get to lend it out at a higher rate so you wouldn’t be paying your bank to hold money unless central banks went -1%-2% etc which I would speculate is close to impossible likelihood.

A -0.1% boe rate would make our Paragon pots go down to around 0.6% instead of 0.8%


The fact Monzo encourage savings pots with 3rd parties means that much money is not held by Monzo, so they can’t lend it out as they are not holding it - would that be correct?


It probably depends on the contract Monzo has with individual companies

It’s not quite like that, super simple explainer but in essence, commercial banks create money from scratch, by providing loans to customers, rather than lending existing customer deposits. This is core principle of fractional reserve banking and is a primary mechanism that creates money and in theory wealth (either through investment or consumption).

A key issue for a bank is managing its liquidity; it needs to make sure the maturity of its assets (loans to customers) are matched to its liabilities (for a bank, these liabilities are customer deposits). If there’s a bank run (for some reason everyone pulls their cash from the bank), some banks may to have to liquidate assets at a loss i.e. forego interest, (in theory this could even mean demanding early repayment of loans but this is very unlikely - BoE has facilities and mechanism that allows them to support and step in before that happens) in order to ensure a bank has the liquidity (cash) to meet the withdrawal demand from customers. The transformation of maturities is a key profit driver in ‘traditional’ banking.

Specifically on Monzo, I don’t know enough about the current model but given it was previously balance sheet light i.e. not really a bank geared to using its own balance sheet for lending, it means it has to take an exceptionally conservative approach to lending, hence why good prospects may struggle to get credit, whether it’s loans or overdrafts. My view is that this a function of the asset and liability challenge, which will be possibly impacted further by a potential need increase its provisions (cover for loan losses) in light of the significant economic deterioration.

Perhaps the business model as presented in the heady days of 2015, if it had taken off in earnest would have mitigated some of these issues, as a hub acting as fee collector for referrals to other financial services providers displaces the convention model.

With this in mind, I’m not sure Monzo will be hugely impacted by neg rates in the short term. It doesn’t pay interest on your current account and is unlikely to have very ‘sticky’ deposits, I expect they are very adept at managing this. So also unlikely you’d get a slew of customers changing their behaviour and pulling cash.

Longer term, lending profitability will be hit as lower rates reduce interest margin they charge for loans.


Looks like it is happening…

There is some ingrained aversion to negative rates amongst certain members of the Monetary Policy Committee, I wonder if the advocates of it can convince them? The Governor does seem open to it and has been clear for some time they would look into it and see the what practical effects it would on have on banks.

Should be noted that there is essentially zero chance negative rates get passed onto consumers, except those with exceptionally large amounts of cash in the bank.

And I wonder what level that may be :thinking:

What’s the betting that negative interest rates crash the banks’ computer systems?

I think that’s why BoE is asking the banks first to make sure there are no operational or technical reasons as to why they can’t set a 0 or less interest rate

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Looking forward to seeing what it does to my tracker mortgage payments. :crossed_fingers:

Going to have to dig out the paperwork to see if there’s a cap on how low it can go. Hope it can go negative.