What Do Negative Interest Rates Mean For Consumers?

The federal government has taken a slew of unprecedented action to support the economy and Americans during the coronavirus crisis, from $1,200 stimulus checks to the Paycheck Protection Program. With lawmakers throwing so many things at the wall to see what sticks, you may wonder if something like negative interest rates could be next.

It’s not likely, but if negative interest rates became prevalent, it would bring a lot of changes to the sphere of borrowing and saving. The Motley Fool offers some tips for consumers.

What Are Negative Rates?

People pay interest on borrowed funds and accumulate it when they put money in their bank account. Negative interest rates would undo that. 

Dennis Hoffman, Arizona State University economics professor, told The Motley Fool that while a bank may not levy a negative rate, it could charge a “storage fee” that surpasses any extra made from interest. 

Hoffman explained that this situation illustrates a “penalty for holding cash.” He reasoned that by lowering interest rates further, lawmakers would be  “encouraging you to rid yourself of cash by spending money and hence stimulating economic activity.”

The clearest example of negative interest rates in the US is short-term Treasury bond yields after cautious investors looked for secure ways to keep their assets during the height of the downturn. So far, yields for 30-day maturities have rebounded, however, they still hover at only 0.1%.

Are Negative Rates Growing More Common?

According to The Motley Fool, no. While negative rates have appeared on some countries’ central government debt, this is a special case.

Since last October, the Federal Reserve has considered implementing negative rates. However, it remains clear that the central bank is hesitant to enact this policy. JP Morgan remarked at the end of May, “The Fed already has signaled an unwillingness to pursue this type of policy and (Fed Chairman) Powell mentioned that the Fed’s thinking hasn’t changed.”

Even though negative rates won’t become prevalent, many Americans building their savings are seeing less than zero after accounting for charges and inflation. Hoffman noted that a more practical mindset is treating negative rates like “really low rates.”

Can I Not Earn Interest By Borrowing?

This hypothetical is highly unlikely. Bankrate.com chief financial analyst Greg McBride said, “Nobody’s going to pay you to take out a loan.”

Hoffman, who supported McBride’s statement, called attention to mortgage rates in countries with negative government bonds. Borrowers continue to pay positive interest rates, just at a lower level.

What’s The Best Course Of Action?

If you need to take out a loan or apply for a credit card and are in good credit standing, you may refinance or make the most of the current low rates.

The current historically low rates mean savers should be more cautious of charges that can diminish returns more and to look for the best deal.

McBride told The Motley Fool that banks were gradually raising most fees like account maintenance and overdrafts before the downturn. On the other hand, he said that about 40% of banks and 80% of credit unions still offer free accounts, particularly if you register for direct deposits.

The question of how fast and strong the economy will bounce back is still up in the air, but many analysts believe that a healthy recovery could arrive early next year. And as the economy comes back, so will higher interest rates.


  • Wiles, Russ. “Negative Interest Rates: What They Are, How They Work and Whether They Are Coming to the U.S.” USA Today, Gannett Satellite Information Network, 2 June 2020, www.usatoday.com/story/money/personalfinance/2020/05/31/negative-interest-rates-what-you-need-know/5288107002/.