Are Deposit Rates heading for negative %

[Codogly]

Now that a Mortgage Rate battle is about to begin ... we should expect that Deposit Interest rates will fall further and perhaps move to minus %. I know that has already happened for corporate deposit rates. This will have a very interesting effect on money movement ... do people head for riskier assets ( Shares / Property / Commodities etc ) ... or do they simply keep with the current conservative trend and pick the straight forward option of paying down mortgage debt. I suspect that most of the 100b on deposit in banks here is held by tracker mortgage holders on very low rates ...they may now be tempted to switch money over if rates go zero.

 

[Lightning]

we should expect that Deposit Interest rates will fall further and perhaps move to minus %

Fall further, probably.

Go into negative territory, I would think that it is unlikely for personal deposit rates. There have only been a handful of situations, in Europe, where personal deposit rates have gone negative. Zero seems to be the effective floor for personal deposit rates.

 

[Codogly]

Personally I thing that floor might be breached now that bank margins are being squeezed on mortgage loan books.
Banks down need our deposits ...they have already reduced rates several times, and the recent indications from the ECB would suggest that ECB Rates will be staying negative for at least a few years, as the pot of money on deposit continues to grow bank will grow tired of losing money by offering these positive rates ( even if the are very low to nothing already ) ... wait and see when the budget next month confirms another 2% reduction in DIRT the banks will cease the moment and reduce rates again.

 

[RedOnion]

Rates for personal deposits won't go negative here for a few reasons.
Legacy Bank systems don't support negative rates.
Negative interest is actually classed as a charge, and requires approval from central bank to implement.
Banks do actually need a certain amount of deposits for liquidity requirements. They've been badly burned before relying on wholesale funding.
They have other tools in their armour if they need to use. They can cut deeper on commercial deposits, and limit maximum balances. We've already seen Credit Unions do this.

 

[Duke of Marmalade]

At negative interest rates 'under the mattress' becomes a huge competitor of the retail banks in a way that it isn't for corporate or institutional deposits.

Expect the number of burglaries to soar if we go there.

 

[Codogly]

Fair enough points above lads but let me put it another way ... we done need to go negative to fall under the current tracker %.
Even if all trackers were on the best one I've heard of : ECB + 0.50% ... then banks only need to fall below that Deposit Rate to temp savers to switch out and into mortgage pay down. We're not far off that at the moment ...

 

[RedOnion]

Oh, I've no doubt we'll see banks head towards 0.01% across the board.
However I know of lots of tracker and non tracker mortgage holders with deposits placed at lower rates than they're paying. It'll take more than what you're suggesting to see trackers paid off quickly - an uplift in ECB rates but deposits staying near zero?

 

[Duke of Marmalade]

Y

Fair enough points above lads but let me put it another way ... we done need to go negative to fall under the current tracker %.
Even if all trackers were on the best one I've heard of : ECB + 0.50% ... then banks only need to fall below that Deposit Rate to temp savers to switch out and into mortgage pay down. We're not far off that at the moment ...

You're making a different point here. We have been in this situation for quite some time.

 

[Lightning]

They have other tools in their armour if they need to use.

Exactly, there is a plenitude of things that banks can do if they want to limit deposits further outside of going negative. Banks can cut rates to zero, banks can reduce their deposit product suite, banks can stop offering term deposits as had happened in other countries, banks can reduce tiers that apply to rates and banks can put in place maximum balances on some products.

Even if all trackers were on the best one I've heard of : ECB + 0.50% ... then banks only need to fall below that Deposit Rate to temp savers to switch out and into mortgage pay down. We're not far off that at the moment ...

As others stated above, today, in most cases, holders of cheap debt, are earning less on their deposits than paying on debt but in not all cases they are paying down the debt.

Oh, I've no doubt we'll see banks head towards 0.01% across the board.

I hold out hope that 0.01% across the board is not end game for deposit rates! Hopefully, there will always be some banks willing to offer non-zero deposit rates for competitive or liquidity reasons.