Swiss banking giant Credit Suisse is going to begin applying negative rates for interest to its wealthiest clients.
Adopting this practice are in many parts of the world, the Geneva-based lender is transferring the price of negative interest rates charged on its reserves to its customers, requiring them to pay a charge for deposits over a specified level.
While the term “negative interest rates” could appear an oxymoron, the idea is straightforward: It signifies banks are charging interest for depositors, instead of paying it as would usually be the case.
An interest rate of 0.75 % shall be charged to private people and corporate clients with cash holdings more significant than 2 million Swiss francs, the bank mentioned, while corporate client’s withholdings more significant than 10 million Swiss francs will pay interest of 0.85 %.
Negative interest rates are generally utilized by central banks to boost a stagnant economy. That usually prompts lenders to make more loans, where they will cost interest rather than pay for it, and to transfer the costs to their clients.
Doing so can broaden the results of the negative-rate stimulus, prompting wealthy people and companies to spend or make investments money rather than park it in bank accounts where they’re losing money.
Five central banks currently have interest rates zero: these within the countries of Japan, Sweden, Denmark, and Switzerland, including the European Central Bank.
While the former head of the U.S. central bank, Alan Greenspan, warned in September that negative interest rates might spread to America, the Federal Reserve has thus far shied away from them, and Chairman Jerome Powell who now holds Greenspan’s former role says they are not an “ideal tool.”
The costs will start on Nov. 15 for Credit Suisse’s corporate clients and on the first day of 2020 for private individuals.
Bank representatives did not immediately reply to queries about how the negative rates would affect customers with holdings in currencies in addition to Swiss francs.