What are negative interest rates, and how will they affect you?

Negative interest rates are becoming more common globally. How do they work, and what’s their impact?

By Tim Gibson

Do you fancy being paid to borrow money?

That’s the prospect available to Danish borrowers after the country’s third largest bank introduced a -0.5pc interest rate last week.

    ...borrowers will pay back less than the value of their loan,...  

Jyske Bank introduced the deal on its 10-year fixed-rate mortgage in an effort to keep its lending market stimulated. It means that borrowers will pay back less than the value of their loan, provided the negative interest rate remains in place for its duration.

The move follows a general trend in Scandinavia towards low, zero or negative interest rates. For example, the region’s biggest lender, Nordea Bank, announced last week that it would offer a 20-year zero-rate mortgage.

Negative or zero interest rates are becoming more common around the world. Australia’s central bank is said to be exploring the option as a way of stimulating the economy, and Japan has a rate of -0.1pc.

Meanwhile, the European Central Bank dropped the rate it pays on deposits to -0.1pc in June 2014 and -0.4pc in March 2016. This is to encourage banks in the Eurozone to loan savers’ money, rather than deposit it.

With former Bank of England policy maker David Blanchflower suggesting that the UK could adopt negative interest rates in the event of a no-deal Brexit, the effectiveness of the policy is now under the spotlight among British economists and consumers.

The theory behind negative rates is simple: by disincentivising saving and making borrowing look more attractive, they drive consumer spending, thereby stimulating the economy.

Put bluntly, it means people are more likely to buy houses, cars and other high-value goods and services, generating more wealth for the nation. After all, what would be the point of leaving your money in the bank if it’s only going to drop in value?

In practice, though, negative interest rates don’t seem to have an inflationary effect. Four countries have adopted the strategy so far (Sweden, Switzerland, Japan and the Eurozone), and only one has seen growth (a modest 0.05pc in Sweden).

Peter Foy, director of Just Recruitment Group Ltd, says the reason negative interest rates don’t work is that they are seen as a sign of panic in a nation’s economy, especially when set by a country’s central bank.

“That would certainly be the case if the Bank of England dropped the base rate below zero in a no-deal Brexit scenario,” he says. “It’s unlikely to stimulate consumer spending, because it sends a message that the economy is in a pickle. Which probably means it’s not a good time to buy a house or borrow a large sum of money.”

    ...the UK could adopt negative interest rates in the event of a no-deal Brexit,...  

Unless you have a high degree of job security and are unlikely to be affected by a long recession, thereby mitigating the risk of borrowing, Mr Foy believes it is sensible to keep money saved, even with a negative interest rate.

“The reason savers don’t withdraw money from a deposit account with a negative rate is simple: their money is still safer with the bank than it would be anywhere else,” he says. “Sure, you could withdraw all your cash and stuff it underneath your mattress or keep it in a safe at home. But that’s a high-risk strategy, and the security you’d need to protect your wealth would have a cost. So you’re better off to keep it in the bank, where you know it’s protected, and that you’ll be compensated in the event of a theft or fraud.”

The other option is to invest in appreciating assets like classic cars, wine, or commercial property rather than bank deposit accounts. But as Mr Foy remarks, “You generally need a lot of wealth to make investments like this. And if you have that sort of cash, you’ve probably already got a pretty varied investment portfolio, so are less impacted by interest rates.”

For the average consumer, it is hard to predict the response to negative interest rates. Some may take the opportunity to buy a money making mortgage, although by the time you factor in transaction and administration fees it is unlikely the bank will end up giving you any surplus.

Others will behave as Mr Foy predicts, believing it to be a sign of a freefalling economy and tightening their purse strings.

Whatever happens, a zero or negative interest rate would be unprecedented in the UK. So as the prospect of a no-deal Brexit looms, the nation’s economic policy makers and bankers are likely to keep a close eye on how the policy pans out in Scandinavia .

How do interest rates work?

Banks charge interest on loans and pay interest on savings. They usually charge a higher rate to borrowers, enabling them to make a profit on what they pay out to savers. They use money deposited by savers to fund loans.

If a negative interest rate is introduced, this system is upended: in theory, banks would take money from savers and pay it out to borrowers.

But in practice, experts agree that banks are unlikely to charge negative interest on savings accounts because customers simply wouldn’t wear it. So they’d be losing money on deposits and on loans: not a good recipe for long-term economic success.

Published: 13 August 2019

© 2019 Just Recruitment Group Ltd

If you enjoyed this article, you may like: My identity was stolen. Now I can’t remortgage

You may also enjoy: John McDonnell berates Sajid Javid. How should he respond?

Jobs currently available

Marketing Executive
Sector: Marketing, Advertising and PR
Salary: £19,000 - £22,000 per annum
Location: Colchester
Role: Full Time
Contract: Permanent
Job ref: 908800
About the role

Are you target-driven and enjoy creating and implementing marketing strategists? 

Are you a people person who enjoys developing relationships? 

Just Recruitment is recruiting for a Marketing Executive on behalf of a company based in Colchester. 

Your duties will include: 

  • Effectively implement subscription marketing plans and renewals to meet the agreed targets. 
  • Develop and agree cost-effective promotional activities, with an agreed expected revenue return. 
  • Use information and systems to prepare pre-activity forecasts, track performance and undertake post-activity evaluation to supply to the Senior Marketing Executive and Marketing and Promotions Manager. 
  • Identify potential problems and propose solutions. 

You will be: 

  • Able to think laterally, to make use of all our marketing channels to leverage subscriptions through promotional content across print and digital, email marketing, social media, exhibitions and much more. 
  • Analytical, and keen to monitor and evaluate the success of marketing initiatives through weekly reporting to feed back to the Senior Marketing Executive. 
  • Detail-orientated and able to take responsibility for the day-to-day management of all campaigns, including setting up promotions, briefing studio, building web pages, setting up media requests for our subscriptions bureau, photography, briefing the warehouse, managing the e-commerce website ensuring all offers are loaded for relevant brands. 
Read more
Sales Administrator
Sector: Public Service and Administration
Salary: Negotiable
Location: Witham
Role: Full Time
Contract: Permanent
Job ref: 908761
About the role

Just Recruitment is recruiting for a well-established manufacturing company based in Witham.

You will have the ambition to succeed and the ability to work on your own initiative with good customer service skills.

Duties include:

  • Following up quotes by phone and email
  • Checking quotes and emails and adjusting prices to win business
  • Prospect calling
  • Booking meetings for the Business Development Managers
  • Warm calls to existing calls
  • Technical queries, quotes and orders
  • Customer service and query answering
  • Incoming calls

Working ideally 9.00am to 5:30pm, Monday to Friday.

20 days holiday per year (3 to be taken over Xmas) + bank holidays.

Read more
QC Technician
Sector: Engineering and Manufacturing
Salary: £15.00 per hour
Location: Sudbury, Suffolk
Role: Full Time
Contract: Temporary
Job ref: 908368
About the role

Calling all QC Technicians

Do you have a degree in chemistry?

Do you have effective communication skills?

Do you have experience and working knowledge in a Chemical and Biological Analytical Technique environment?

Do you have experience in dissolved gas analysis and blood gas analysis?

Just Recruitment is looking to recruit on behalf of a busy company based in the Sudbury (Suffolk) area for a QC Technician on a temporary ongoing basis.


  • QC testing, data collection, analysis, interpretation and reporting.
  • Preparing for customer, regulatory and notified body audits.
  • Quality Related Training.
  • Quality testing related improvement projects and quality initiatives.
  • Understanding of GxP requirements.

Working hours:

Monday to Friday, 7:45am to 4:50pm.


  • Free tea and coffee.
  • On site parking.
  • Weekly pay.
Read more
Machine Operator
Sector: Engineering and Manufacturing
Salary: £8.40 per hour
Location: Haverhill
Role: Full Time
Contract: Temporary
Job ref: 908151
About the role

Just Recruitment is looking for an experienced Machine Operator on behalf of a company based in Haverhill.

Working hours are:

Monday to Friday, 8am until 5pm.

Read more
Operational Support Engineer
Sector: Engineering and Manufacturing
Salary: Dependant on experience
Location: Gillingham, Kent
Role: Full Time
Contract: Permanent
Job ref: 908799
About the role

Just Recruitment is recruiting for an Operational Support Engineer (Automotive) on behalf of a company based in Gillingham, Kent.

Your main duties and responsibilities:

  • Deliver projects and process improvements from concept through to completion.
  • Provide practical problem solving on the process.
  • To support the operation in terms of providing the means and process to manufacture product to the correct quality, volume as well as cost.
  • To actively reduce costs of manufacture (MEIT) whilst maintaining product quality and volume.
  • Support the hourly needs of the operation by monitoring and responding to process output signals such as OA performance, Traffic light charts, FTQ data etc.
  • Monitor daily reject returns, gather data and implement robust fixes.
  • Work closely with operations to ensure production output targets are sustained.
  • Be responsible for ensuring that all equipment used in manufacturing or assembly processes is functioning and in specification.
  • Create operational standard work and line balance, understanding process constraints.
  • Be responsible for ensuring that all gauging equipment used in manufacturing or assembly processes is functioning, working within specification and calibrated.
  • To provide structured problem-solving activity and liaise with internal and/or external individuals on problem resolution.
  • Carry out FMEA process documentation and implement improvements.
  • Ensure that the work environment meets the requirements for environmental, ergonomic, health and safety considerations.

Essential requirements:

  • Hands on experience of CNC machining processes in a manufacturing environment – grinding, turning, milling etc.
  • Ability to work in a structured, organised manner and mindful of standard work – both as applied to the manufacturing process and in the engineers’ approach to workload.
  • Analytical and data literate.
  • Current IT knowledge of MS Word, Excel, PowerPoint, Access, project etc.

Desirable requirements:

  • Ideally (Mechanical) Engineering Degree or ‘time served’ or relevant industry experience in a broad spectrum of activities.
  • Various shifts including day shifts are available.
Read more
Sector: Public Service and Administration
Salary: £18,000 - £20,000 per annum
Location: Colchester
Role: Full Time
Contract: Permanent
Job ref: 908795
About the role

Just Recruitment Group is recruiting for an Administrator on behalf of a company based on the outskirts of Colchester. 

The role will be supporting the Production Manager and their team. This is heavily admin based and requires a driven candidate who can cope under pressure with the ability to prioritise workloads. The role will involve general admin duties alongside account handling and taking a large amount of calls per day. 

You will be: 

  • Organised 
  • Have an excellent telephone manner 
  • Experienced in using Microsoft office (especially Excel) 
  • Outgoing 
  • Keen to learn 
  • Open to any job required

Excellent salary, free parking and company benefits are on offer. 

Read more