Banks to charge for holding cash?

NatWest and RBS are the first banks to issue warnings to 1.3 million businesses and commercial customers that they may have to start charging for bank deposits – in effect introducing negative interest rates. Whilst the norm is that money deposited in the bank receives interest in return (albeit not a lot at the moment), the banks will reverse this so that they are paid for holding the cash.

The charges will come into effect only in the unlikely event that the Bank of England sets a negative interest rate in their announcement scheduled for the week commencing 1st August, and these warning letters were to provide some “wriggle room” for the banks in this situation. If the charges were to be implemented, they would be aimed at encouraging borrowing and discouraging saving within the business sector, in order to provide a boost to the economy. Of course, it is very unlikely that rates will fall below 0.25%, but Mark Carney has indicated that this could be the case and, in so doing, has generated the effect that would be produced if rates were actually reduced, without it actually happening. A very clever man, with multiple cards up his sleeve.

Whilst, at present, it is only businesses that have been advised of this possible charge and personal customers will not be penalised, it is sure to increase the costs to consumers at the end of the business chain. And, who knows, if this course of action is adopted by all banks, what is to stop them introducing this for personal customers in the future?