Negative and Low Deposit Rates and Penalty on Savers

Abstract

Low interest rates around the world due to adaptive monetary policy regulations for some time a source of concern for the banking sector and depositors of the bank. In this environment, interest rates have raised concerns about nominal deposit interest rates which cannot be lowered below zero without destroying bank customers. Bank loans are becoming less vulnerable to lower interest rates on deposits approaching zero, indicating that the financial channel is weakened when interest rates are close to zero. Demographic pressures associated with longer life expectancy, China's gradual integration into global financial markets and changes in supply and asset requirements are attributed as reasons for low interest rates. Volatility of CPI inflation, interest rates on bank deposits attracting income tax and discontented depositors due to lower rates are cited as reasons for the suffering of bank depositors. This chapter thus discusses the impact of negative rate on economic growth and bank customers besides discussing the future trends of negative interest rates.

Citation

Janakiraman, B. (2019), "Negative and Low Deposit Rates and Penalty on Savers", Das, R.C. (Ed.) The Impacts of Monetary Policy in the 21st Century: Perspectives from Emerging Economies, Emerald Publishing Limited, Leeds, pp. 65-73. https://doi.org/10.1108/978-1-78973-319-820191010