Negative interest rates should you be worried
As fears about the economy increase, so have household and business cash deposits, leading to the wave of media reports of banks beginning to charge their customers negative interest rates.
While bank charges for holding on to your cash during economic uncertainty sounds totally counter-intuitive, it is reflective of central bankers’ desperate measures to provide banks with protection against severe economic fallout.
If your bank account is being charged negative interest, it means that holding on to that cash is actually costing you money.
Rather than being rewarded for your savings and prudent management of your cash, savings lose their value while borrowers in fact may even benefit financially for taking out a loan.
However, interest rates in Ireland have been low for sometime and even before the pandemic hit, stashing cash in a deposit account was not a profitable strategy.
So what is the best way to deal with negative interest rates?
The key to protecting, and growing your money is to take another look at the way we think about risk.
With the security of our money typically front of mind, in times of economic uncertainty, many people view the bank as a safe haven for their cash.
However, doing so runs the very real risk that the value of our money will be eroded. The only surety we have is knowing that we a) will be charged a negative interest rate and b) that we will have less money than when we started.
Finding an investment solution that suits your risk profile IS achievable despite the current economic volatility.
During these unprecedented times, you may have concerns about investments, but it is important to remember:
1 Stock markets go up over the long term.
2 Large peak-to-trough falls in value in stock markets are inevitable.
3 Historically, the biggest gains tend to follow the biggest falls.
As we discussed in our summer blog on investments, market volatility is a normal and expected part of investing. Yes, the current environment can be unsettling however history shows us that stock markets generally rise over the medium to long-term.
It is important to seek expert advice that helps support your long-term financial strategy and support you to avoid the impact of negative interest rates where reasonable options exist.
If you are holding on to cash in a bank account or in a pension right now, then that could be costing you money. Don’t be afraid to explore your options; we can help get your cash working for you with a solution that suits your circumstances.
Give our team a call today to discuss how negative interest rates might affect your cash holdings and to find out about your options. Call us now on 091 670 123.