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Negative interest rate
December 18, 2014
9:14 am
JustMe
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Swiss has introduced negative interest rate of -0.25% on deposits. Why would anybody sane keep its money in the bank there??? Educate me, maybe I am wrong but I never heard that I HAVE TO PAY bank to keep my money.
So those 1-2% we are getting at home is fantastic, or not?

December 18, 2014
9:22 am
Koogie
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As I understand it, the Swiss are dealing with a MASSIVE influx of Russian money as people flee the ruble meltdown. They are having to do it to offset the effects on the Franc.

I guess some oligarchs think it is better to pay the Swiss -0.25 to keep their money safe than it is to lose 5% or more a week as the ruble declines !

December 18, 2014
9:29 am
Greg Franklin
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JustMe, I believe you are talking about people with large deposits of maybe 100,000 to 250,000 Euros or more but I could be wrong on that.

Switzerland did this about 40 years ago and I think it is because they have too much foreign money coming in.

You have to remember though that Switzerland was always paying much lower interest rates on savings, fixed rate deposits, bonds because it is seen as a safe haven with a stronger, more stable currency of times of economic, financial turmoil and collapse.

Germany also has negative interest rates for the last few months on some of their bonds as does Switzerland and I heard that a few weeks ago that a German bank was charging interest, negative interest rates for depositors on 500,000 euros and above.

Right now, 3.00%, 3.05%, 3.09% from some Canadian banks, credit unions for 5 and 7 year money looks low but they were 4.75% to 5.10% just 7 years ago.

Nobody can predict the future but in my opinion, if the U.S. has a stronger economy, more jobs and raises interest rates with bond rates, yields going up, we usually follow with higher rates, bond yields but not usually with the full increase.

Makes you think how bad things can get if this stuff spreads globally.sf-frown

December 18, 2014
10:28 am
Norman1
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The -¼% rate is only on "sight deposits" (instantly cashable) of more than 10 million Swiss francs (about $8.2 million Canadian). See BBC News: Swiss National Bank will cut interest rate to minus 0.25%.

Switzerland is having the "challenge" of too many people wanting to convert their money to Swiss francs and depositing it into their banks! The government is afraid that will push up their currency and make their exports too expensive. Imagine that!

December 18, 2014
12:59 pm
Greg Franklin
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Norman1, their bond rates, yields are negative already from 1 week to 6 years, http://www.investing.com/rates.....ment-bonds.

Even after that their rates are so low that it puts to shame Japanese bond rates, yields which some are negative today, 1year -0.013, 2 year -0.005%, 3 year -0.007%.

Switzerland 5 year -0.085%, 10 year 0.318%, 15 year 0.469%, 20 year 0.661%, 30 year 0.808%.

I can't see them giving really much if any interest to people with their savings account, fixed rate deposits at banks and other financial institutions in Switzerland.sf-frown

December 18, 2014
1:13 pm
Greg Franklin
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There are many countries that have negative interest rates from their bonds, usually 3months to 2, 3 years like Austria, Belgium, Denmark, Finland, France, Germany, Netherlands, even Italy now but it is only for 3 months in their case.

Other country bonds that do not have negative interest rates from their bonds are still pretty low with 0.10% to 1.99% for 3 months to up 5, 6, 7 years and some as much as 10, 15, 20, 30 years years.

I don't want to panic or over do it but this could slowly creep up globally.sf-cry

December 18, 2014
4:52 pm
Loonie
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It depends on how you conceptualize things as to how far ahead we really are as Canadians. Like so many things in economics, looking at one factor in isolation does not get you very far.

Most chequing accounts in Canada are a losing proposition, for example. The monthly fees are substantial, and often there is no interest whatsover, so you lose money every month ("negative interest"), but you are getting the service of a chequing acct (even though people rarely use cheques any more). Really, it's more about having a higher number of withdrawals than a savings acct permits, and many pay handsomely for that.

In addition, our dollar is falling fast relative to the US dollar. I don't think we've seen a lot of it yet but this is going to mean less buying power as local inventories are replaced. This means that our 1 to 3% rates could be quite laughable and in fact negative in real terms. I expect significant inflation next year.

I don't know what our dollar is doing relative to Swiss currency, but it would need to be considered before drawing too many conclusions. As has been suggested, Swiss currency has a high "flight to safety" premium. Maybe negative interest is more like paying an insurance premium - and relatively cheap at that. People wouldn't be making these deposits if it wasn't worth their while.

And then of course there's the rate at which interest income is taxed. I don't know what it is in Switzerland or Germany or Russia etc, but it's a safe bet that it's not identical to ours, and it would be apples vs oranges to omit this as a factor.

I'm sure there are other relevant factors as well.

December 18, 2014
4:55 pm
JustMe
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Greg Franklin said

I don't want to panic or over do it but this could slowly creep up globally.sf-cry

So, to avoid disappointment we better get those 5-7 years GIC at meager 3% than 0%.

Edit by admin: offensive language removed. Please do not post such language again.

December 18, 2014
7:47 pm
Jon
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The fact that low interest environment in Europe have create a new fashion for European (mostly German as they have the most saving) to invest in investment grade bonds in North America as our interest for the same duration and grading bond is much higher than European rate while Euro is devaluating against USD and to some extend, CAD.

Greg, thanks to the very conservative German central bank, there have already been an expectation of deflation which cause people to store cash in their mattress as people expect bad economy in the future and refuse to invest. Moreover, the equally conservative German government is pushing for massive debt reduction across Europe which disregard that some expanses, such as health care and education will generate far more tax revenue that the expanses in the long run.

December 19, 2014
10:05 am
Bill
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Jon, how do education and health care generate more tax revenues than they cost? I'm guessing you're going to say educated people end up making more so pay more taxes and that if we keep people alive longer they'll pay more taxes - ? Seems to me a lot of educated people today end up in public sector jobs and most old folks are not producing anything, but I'm not an economist so maybe you've got more insight.

December 19, 2014
2:31 pm
Jon
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you got it Bill

December 19, 2014
3:32 pm
Norman1
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Greg Franklin said

There are many countries that have negative interest rates from their bonds, usually 3months to 2, 3 years like Austria, Belgium, Denmark, Finland, France, Germany, Netherlands, even Italy now but it is only for 3 months in their case.

Other country bonds that do not have negative interest rates from their bonds are still pretty low with 0.10% to 1.99% for 3 months to up 5, 6, 7 years and some as much as 10, 15, 20, 30 years years.

I don't want to panic or over do it but this could slowly creep up globally.sf-cry

That's not likely unless everyone has the kind of inflation Switzerland has.

Loonie said

It depends on how you conceptualize things as to how far ahead we really are as Canadians. Like so many things in economics, looking at one factor in isolation does not get you very far.
...

I agree. The nominal interest rate is just part of the picture. The other part is the inflation rate.

According to inflation.eu, Switzerland and Canada had the following inflation in the past three years:

Year Switzerland Canada
2011 -0.71% +2.30%
2012 -0.43% +0.83%
2013 +0.07% +1.24%

At the end of 2013, a Swiss franc under one's mattress would buy about 1.1% more in Switzerland than it did three years ago.

In contrast, a Canadian dollar under one's mattress would buy about 4.2% less in Canada than it did three years ago.

December 22, 2014
10:41 am
Greg Franklin
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As long as we do not see higher wages above 2.00% a year, it is likely that longer term GIC, bond rates will not go up much.

Now, if there is deflation in housing prices, values then this likely would put pressure on the Bank of Canada to keep rates low or possibly cut them.

However, as European and other bond yields are staying low and go lower that will likely put pressure on our GIC, bond rates as well borrowing rates like mortgages, car loans, lines of credit etc.

I still think that U.S. rates are those interest rates, U.S. bond yields will and do have the most influence and impact on our Canadian interest rates and bond yields.

I don't know why JustMe is so upset with me as I want interest rates, GIC, bond rates or bond yields and even dividend yields to be higher.

When these rates were 4.75% to 5.00%+ in 2006 and 2007 before the financial, economic crisis happened, many forecasters were saying we will see higher interest rates.

This was true even in 2010, 2011 but they just seem to want to go down and stay down. I am frustrated and disappointed as other savers, fixed rate investors are too.

I am just stating what rates are today and what they are doing. We live in a global world, economy etc. so things can happen and spread as they have but not us completely.

Take care and hopefully things get better in the new year, 2015.sf-smile

October 21, 2019
10:19 am
Bill
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MoneySense magazine had an article which said "In August, Jyske Bank, Denmark’s third largest bank, said homebuyers could get a 10-year fixed-rate mortgage for -0.5%. So, yes, the bank is basically paying those people to take out a loan." Cool!

October 21, 2019
4:55 pm
Brimleychen
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I don’t think it is cool for any savers here, with this type depressed interest rates.
...
Due to the flood of new money the yields on government debt have been depressed, giving holders of this debt, principally the banks, a nice fat capital profit.
....
Central banks pretend all these benefits come at no cost to anyone.
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Unfortunately, there is no such thing as a perpetual motion of money creation, and someone ultimately pays the price. But who pays for it all? Why, it is the wage-earner and saver and anyone else with deposits at the bank. They are also robbed of the compounding interest their pension funds would otherwise receive.

October 21, 2019
6:37 pm
Bill
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True, Brimleychen, but there are lots of ways to make money so if you feel saving is a losing proposition then stop it, be adaptable to the circumstances. For example, interest rates have been low for decades now and that's presented awesome opportunities in other areas, e.g. real estate and stocks are areas that normally thrive in low-interest rate environments, and indeed they have. If I'd been exclusively a saver over those decades my wealth would be a fraction of what it is today plus I'd probably be envious of or bitter at those who did so profit. You point out that banks profit from low yields on gov't debt, so if you think that's the case then the clear lesson is to participate in those profits via bank shares ownership. If, as you say, savers are paying the price, are being "robbed", then clearly stop being a saver, at least with some of your money, and do what those who you feel are profiting are doing.

October 22, 2019
9:31 am
Vatox
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Brimleychen, that only applies to those that NEED to have big gains. I say people need to contribute higher amounts to savings and stop trying to get free money from thin air. We work hard and if you live a bit lighter with larger savings contributions, your retirement will be blissful.

October 22, 2019
9:56 am
Bud
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Vatox said
Brimleychen, that only applies to those that NEED to have big gains. I say people need to contribute higher amounts to savings and stop trying to get free money from thin air. We work hard and if you live a bit lighter with larger savings contributions, your retirement will be blissful.  

Exactly! Take Vatox advice and you will live comfortably or at least comfortably enough. You can still enjoy the things you really want.

GIC King

October 22, 2019
9:09 pm
Joe
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Bill said
True, Brimleychen, but there are lots of ways to make money so if you feel saving is a losing proposition then stop it, be adaptable to the circumstances. For example, interest rates have been low for decades now and that's presented awesome opportunities in other areas, e.g. real estate and stocks are areas that normally thrive in low-interest rate environments, and indeed they have. If I'd been exclusively a saver over those decades my wealth would be a fraction of what it is today plus I'd probably be envious of or bitter at those who did so profit. You point out that banks profit from low yields on gov't debt, so if you think that's the case then the clear lesson is to participate in those profits via bank shares ownership. If, as you say, savers are paying the price, are being "robbed", then clearly stop being a saver, at least with some of your money, and do what those who you feel are profiting are doing.  

Bill gets it!
image.png.eea3da566432bbd68f5928b22c0f6817.png

October 23, 2019
8:07 am
Bud
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Tell us Bill how to get rich how did u do it u own a house what percent of ur wealth is that u bought rental property stocks break it down for us. If i had a nickel for all those who claim to have made out like a bandit id be rich. Bill doesnt sound like one of those who doesnt check his statements or has an advisor patting his back. Of course he knew there'd be wild debt fueled speculation and prices would continue to rise because of immigration he studied the statistics. He knew only cdn bank stocks would survive the financial crisis. He knew companies with no profits would thrive. He studied history grandparents lost everything. He wont be bitter if his asset portfolio collapses he will suck it up not expect a hand out from Brim n other taxpaysrs who rescued him in 09.

GIC King

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