What Are Negative Interest Rates and How Could They Affect You?

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You might have heard the phrase “negative interest rates” in the past several months. Some countries around the world are already seeing negative interest rates, and some investors believe they may be coming to the U.S. soon.

Although negative interest rates primarily affect banks, if you have a savings account, mortgage, or other relationship with a financial institution, you could also see some changes.

In this article, money expert Clark Howard and a seasoned financial planner explain what you need to know about negative interest rates and how they could ultimately impact you.

Table of Contents

Negative Interest Rates: What You Need to Know

What Are Negative Interest Rates?

Negative interest rates are essentially when borrowers are credited with interest rather than having to pay it.

The flip side is that people or institutions looking to deposit money somewhere may end up having to pay for the privilege of doing so. Negative interest rates are typically instituted by governments as a tool to stimulate economies.

“One of the reasons countries will push into negative interest rates is to force people to invest money that they were saving in order to help the economy get more life to it,” Clark says. “The idea is to cause enough pain for savers that they say, ‘I can’t make it on this puny amount of money that I’m earning on my savings. I’ve got to do something. I’ve got to invest it in some way.'”

How Do Negative Interest Rates Affect Banks?

The good news is that negative interest rates are most immediately felt by banks and other large institutions — not individuals.

“Negative interest rates really affect big financial houses,” Clark says. “They don’t typically directly affect consumers. But if I’m a big financial house that needs to find a place to put $100 million, that’s when I might have to pay somebody to hold that money for me. They’re going to charge me just to take the money off my hands for a week, a month, six months, whatever.”

Matthew Miller, Chief Investment Officer for Pendyne Capital, says that’s obviously not great news for the financial institutions.

“In very low-interest-rate environments and negative-interest-rate environments, banks really suffer,” Miller told Clark.com. “It hurts their profit margins. Banks can’t make money in a negative-interest-rate environment without taking a lot of credit risks.”


Banks, like any other business, are in the business of making money. So how do they do that with negative interest rates? That’s where you come in.

How Could Negative Interest Rates Affect Me?

The downstream effects of negative interest rates are primarily two-fold.

The first thing you’ll probably notice is that the interest rate you’re able to earn on your savings is likely to drop dramatically.

If rates go negative at the federal level, “most banks will move to paying essentially zero on deposits — maybe in the neighborhood of 0.1%,” Miller says.

The other result of negative interest rates might be less obvious but just as painful to your wallet.

“The historical playbook of traditional banks when interest rates go down is that they look for fees that they can charge you,” says Clark.

Those fees could take many different forms.

“When you open an account, you sign an agreement that says the bank can [increase fees] unilaterally without your permission,” Miller says. “You might see your bank — like some of the big banks already do — when you order checks that used to be an $8 fee, it will be a $36 fee. You could end up with a monthly fee if your level of deposits go below, say, $10,000. That could be $6, $8, $10 a month.”

Is There Anything I Can Do to Protect Myself?

The number-one thing you can do when interest rates are dropping to zero or below is to stay vigilant.

“Consumers should watch the fees that creep onto their statements,” Miller says.


If you notice that the fees you’re paying add up to more than you’re getting for your money, you are essentially earning a negative interest rate.

Luckily, in today’s world, you have lots of options.

“There are so many alternative places people can put money that didn’t exist before now,” Clark says. “The cost of business for many of these newer online banks is so low that they can probably handle continuing to not fee people to death.”

Miller says that consumers should be looking toward “digitally native” online banks, something Clark has been advising for years, for opportunities to earn some interest without drowning in fees.

And if you’re leery of leaving your traditional brick-and-mortar bank?

“The people who are loyalists to their old banks are the ones who are going to get clobbered,” Clark says.

If you haven’t moved your accounts online yet, consider making that a priority.

“It’s worth the hour time investment to learn a little bit about using your smartphone for banking,” Miller says.

If you have an account that doesn’t meet certain requirements at a big bank, you could be getting soaked with fees. Meanwhile, if you’re banking with someone like Schwab Bank or Synchrony, you could still be earning interest on your money.

“You just have to change those habits to move to an online bank,” Miller says.

Are There Any Positives to Negative Interest Rates?

Thankfully, the prospect of negative interest rates isn’t all doom and gloom for consumers.


“On the plus side, mortgage interest rates could go much lower,” says Miller. “There were 0% interest rate and slightly negative interest rate mortgages in Denmark last year. I don’t think they’ll get that low in the United States , but I’d also be surprised if we don’t see some people getting 15-year mortgages at 1.95% or even 1.8%.”

So, if you’re in a position to do so, a negative-interest-rate environment is a great opportunity to refinance or even buy a home.

Final Thought

Negative interest rates would be new territory for the U.S. and its citizens. But as long as you’re prepared, you can blunt the impacts on your pocketbook. And, as with most things, it’s a double-edged sword.

“Interest rates on deposits are going to be terrible for a long time — maybe even for a generation,” Miller says. “But interest rates on borrowing are also going to be super cheap.”

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