Negative interest rates to make savers hoard

3 December 2015

In a poll of 13,000 consumers across Europe, the US and Australia, an ING International Survey (IIS) found that 77% of consumers would withdraw money from bank accounts following negative interest rates.

While 10% of all respondents would spend more, this would be matched by others saving more.

Remarkably, of those who said negative interest rates would lead them to reduce their bank savings, about 40% said they would hoard cash. In the Netherlands, Belgium and France, this proportion rises to 50%.

The consequences of the IIS findings were published in an ING Economics report ‘Negative rates, Negative reactions’.

In recent weeks, there have been growing expectations that the European Central Bank (ECB) will cut official interest rates further into negative territory.

The much-expected move is part of a new round of economic stimulus measures for the Eurozone.

However, the ECB’s attempts to get people to borrow and spend could have limited impact, according to the ING Economics report.

Although the ECB’s official interest rate (the rate banks receive, or in the case of negative interest rates, pay on excess funds deposited with the ECB) is already negative, banks in general have been reluctant to go below zero on retail rates.

The survey suggests that if banks do go into negative territory on interest rates, then consumers are not likely to spend more.

With loan rates largely linked to official interest rates, banks may be less willing to lend as their margins are squeezed as a result of lower loan rates, not necessarily matched by lower savings rates.

The International Survey also found so far, that in response to lower interest rates (but they still remained positive), more than 30% had changed their savings behaviour. Of this proportion, 40% indicated they would save more.

However, in good news for the ECB, 38% said they would save less.