Photo: eblaser via Flickr
Bank of New York Mellon and State Street are applying negative interest rates to deposits of Danish kroner and Swiss francs.In other words, clients are being charged to store these currencies at these financial institutions.
State Street will impose an interest rate of -0.75% to krone deposits and -0.25% on deposits in Swiss francs in November. Last month, BNY began levying negative interest rates solely on krone deposits. Royal Bank of Canada and SEB AB also plan to charge for these deposits.
This move predominantly affects institutions like mutual funds, insurance companies, and pension funds.
The Danish kroner and Swiss franc are often seen as safe havens assets, or low volatility assets that don’t lose value.
Demand for these currencies has been huge as many investors flee the euro.
However, these deposits have generated no money for the banks holding them.
The implementation of negative interest rates enables banks to preserve profit margins in light of the strong demand for these currencies. BNY spokesman Kevin Heine claims the move “is being done to cover costs associated with maintaining these deposits, which include charges being imposed by sub-custodians and market-driven investment rates” and negative short-term market interest rates.
The advent of negative interest rates on deposits is a herald of cloudy times ahead for safe havens. With the possibility of Treasury yields offering negative returns, we’re fast approaching the point where savers in the U.S. will finally get to pay for a safe place to put their cash.
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