July 24, 2021

Could you have to pay your bank to save money?

Countries are being forced to use extreme measures to keep the economy afloat amid the coronavirus crisis.

Now, the Bank of England has signalled that it may take the cost of borrowing below zero.

Last month, the Bank started new work on how negative interest rates could affect banks and the wider economy.

But what exactly are negative interest rates? And could a world where savers are penalised and borrowers rewarded end up doing more harm than good?

The term “interest rates” is often used interchangeably with the Bank of England base rate.

Described as the “single most important interest rate in the UK”, the base rate determines how much interest the Bank of England pays to financial institutions that hold money with it, and what it charges them to borrow.

High street banks also use it to determine how much interest they pay to savers, as well as what they charge people who take out a loan or mortgage.

The Bank of England usually lowers interest rates when it wants people to spend more and save less.

It cut them to a fresh low of 0.1% in March to try to stimulate the economy amid the coronavirus pandemic.

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