Thursday, July 12, 2012

Welcome to the era of negative interest rates

Don't be surprised when one day, you realise that the bank will charge you interest (instead of paying you interest, in common sense) for the money you deposit with them.

This has already gone real in certain financial institution in the USA and in Europe. Even some new bonds recently issued by the government of some countries in those regions are having negative interest rate.

Well, when a financial institution impose a negative interest rate, it sends a clear message to its depositors to withdraw their money from that institution and deposit to other competitors who still offering normal positive interest rates, or to use the money for consumption or invest in other kind of investment instruments that might not be as safe as the money market but also provide higher potential of growth to the money, or to keep the money at home in your personal safe.

Why a financial institution wants to force you to withdraw your money from them? Probably because they have too much idle cash on hand, and the investment situation is really bad, and the interest rate is really low (in low interest situation, their profit margin to lend out the money is low).

No matter how, be prepared for the day to come to you.


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