Negative Bank Rates Have Begun in Europe

TheStreet.com

NEW YORK (TheStreet) -- Are U.S. bank savers heading for the once unthinkable -- negative rates on their bank savings accounts?

Media reports say a "negative bank rate trend" is already underway in Europe, where the European Union has implemented a negative rate policy for all 18 Euro nations.

Economists say the so-called NIRP is a radical departure from the policy engineered by the U.S. Federal Reserve that puts federal fund rates at or near zero, keeping bank savings rates low and eating into the returns on bank certificate of deposit accounts, money market accounts and bank checking and savings rates.

Consider the current rate of return on bank CDs. According to the BankingMyWay Weekly Rate Tracker , a one-year CD pays out, on average, 0.193%. While that's in positive territory, it doesn't come close to keeping pace with the rate of inflation, which stands at 2%.

Bank savings and checking account rates of return are even weaker, at 0.065% and 0.046% respectively.

With rates that close to zero, it's not so far-fetched to believe negative interest rates are coming across the Atlantic to the U.S. With negative bank interest rates, you could wind up paying 1% or so for the privilege of parking your money in a safe place, just as European bank savers will be doing per the European Union's new policy.

One safety net for U.S. bank savers is the relatively strong inflation rate. In Europe, the inflation rate -- a huge benchmark for economic policymakers -- is at 0.5% as of May down from 1.6% in July.

A weak interest rate reflects a lousy economy, complete with a lousy jobs picture and a downbeat economy. Thats what is happening in Europe, and that's driving policymakers to lower interest rates from the EU's current policy of zero interest rates to rev up the continent's economic engine.

When rates are at zero, and you have to slash them to create economic growth, there is nowhere to go but to negative rate territory.

The U.S. isn't there yet, but its next backward step would be in the same downward rate direction as the E.U. Bank savers are hoping that won't be the case, even as it's apparently too late for their European counterparts.

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