Simon Collyer, ABC Founder, Appears on BBC Radio Essex Breakfast Show This Morning

NEGATIVE INTEREST RATES – Simon Collyer appeared on BBC Essex, Radio Breakfast Show, this morning talking about negative interest rates.

Negative interest rates are used when a central bank such as the Bank of England (BoE) wants to create inflation by boosting demand in the economy. By forcing banks to pay interest on the money they hold they are better off lending it. There was lots of talk about the banks charging customers interest for holding their money, but the reality is that all money is borrowed into existence and banks have to pay the BoE interest.

In reality banks may absorb this cost initially because customers can easily migrate to banks that do not charge customers for keeping their cash on deposit.

Cash on deposit by savvy savers will get used to buy shares and bonds with or gold. The people who will get hit if negative rates are introduced are the savers. Not only will they pay a fee but rising inflation with reduce the purchasing power of money. Thus, moving cash into real assets is a way of preserving its value. Buying individual shares is risky but index funds linked to the overall value of the stock market are a safer bet. Gold is very volatile and does not pay interest, but when there are inflation fears it tends to do well price wise.

Your granny and her gold wedding ring and jewellery was walking around with her ‘rainy day’ money on her person.

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