In 2014 the European Central Bank attempted to usher in an era of “easy money” by lowering their main interest rate below 0%. This was an unprecedented event which lead to many countries across the globe with negative yields on their 10-year treasury notes. (If you’re interested in a quick primer you can always refer to our piece last year The World According To NIRP. While this madness was happening, many pundits wondered the impact this might have back home. While the immediate impact wasn’t notable, one pundit, despite three rate hikes believes negative interest rates have come to America.
Simon Black of Sovereign Man wrote a piece two weeks ago explaining his opinion on why he thinks negative interest rates have come across the Atlantic. In his article Black talks about some troubling facts that he found in Bank of America’s most recent annual report. In that report BOA had $592.4 billion in deposits from retail customers in 2016. They paid an average interest rate of 0.04% for roughly $236 million in interest on money deposited last year. The big hang up is during that time BOA collected $4.1 billion dollars in fees… $4.1 billion dollars! The difference between the fees collected and interest paid out is a hefty $3.8 billion. Black goes on to say that it’s like the banks charged their customers a negative interest rate of 0.64% when everything is said and done. Despite Black’s claims I can’t say that this is really negative interest rates; what it really is, is a financial institution holding your money for a fee.
Banks have been doing this since their inception but, in the past, this was palatable because the interest the bank paid often outweighed the fees they would charge us. Unfortunately, for almost a decade now, that hasn’t been the case. People turned to banks after 2008 in order to safeguard their money but during that time interest rates have dropped far more than they have risen. Couple that with the seemingly endless scandals and you have to wonder why we continue to grant them use of our money, and then pay them for it.