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It's a Bad Time to Be a Saver in Europe

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
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In the post-crisis economic environment, with record-low interest rates in many countries, it's better to be a borrower than a lender, despite Shakespeare's admonition to be neither. These days, however, it's even worse to be a saver.

Since the European Central Bank in June sought to prod banks to lend more -- by imposing negative interest rates on banks' ECB deposits -- savers are discovering that banks aren't the only ones paying for the privilege of having cash on hand. At least three banks -- State Street Corp., Bank of New York Mellon, and Deutsche Skatbank -- have introduced negative rates for large euro deposits.

QuickTake Negative Interest Rates

It makes financial sense for the banks: If the ECB is charging them 0.2 percent for holding their cash, banks have a fiduciary duty to try to recoup that cost. The result is that depositors suffer the consequences of the ECB's interest-rate tyranny. They would do better to stash their money in mattresses:

The ECB addressed the implications of its monetary-policy shifton its website after it cut its deposit rate below zero. It asked the question: "Do I now have to pay my bank to keep my savings for me? What is the effect of this negative deposit rate on my savings?" And then it answered itself:

There will be no direct impact on your savings. Only banks that deposit money in certain accounts at the ECB have to pay. Commercial banks may of course choose to lower interest rates for savers. The ECB's interest rate decisions will in fact benefit savers in the end because they support growth and thus create a climate in which interest rates can gradually return to higher levels.

So the first sentence turned out to be incorrect. And the final sentence provides scant comfort to a depositor whose hard-earned cash is dribbling away and is too pessimistic about the future of the European economy to find more productive uses for the money, such as spending it or investing it.

We've been here before, including in 2012 when depositors fled the euro and piled into other currencies. Credit Suisse imposed negative rates on Swiss franc cash balances, for example, and said it would "invite our customers to keep cash balances as low as possible to avoid negative credit charges." State Street also imposed negative rates on Danish kroner deposits. If you're a central bank, it's not a good sign when institutions actively seek to deter customers from owning your currency.

Skatbank's website says business and checking-account customers with balances below 2 million euros ($2.5 million) are unaffected by the change. It is, though, charging more than the ECB charges it -- 0.25 percent per year versus 0.2 percent -- to everyone else.

Savers paying banks to keep their money suggests the risk of deflation is growing. It also seems that an unintended consequence of Germany's opposition to aggressive quantitative easing is that German savers are taking a beating. It's a strange world when economic frugality is punished while fiscal profligacy gets rewarded.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mark Gilbert at magilbert@bloomberg.net

To contact the editor on this story:
Paula Dwyer at pdwyer11@bloomberg.net