A Danish bank is launching a 0.6% negative interest rate on its savings accounts for millionaires
- One of Denmark's largest banks is changing its savings account interest so it will effectively charge its richest clients to hold their deposits.
- Customers of Jyske Bank with savings over 7.5 million Danish krone ($1.1 million) will be receive an interesting rate of negative 0.6% a year.
- A deposit of the minimum $1.1 million would decline by $6,600 under this system.
- It follows Jyske Bank launching a negative interest mortgage at -0.5%, effectively paying customers to take out a home loan.
- The unusual decision comes against a background of long-term central bank negative interest rates, and an uncertain global economy.
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Jyske Bank, one of the largest lenders in Denmark, has announced that it will start charging wealthy clients to store their money, just weeks after introducing the first ever negative interest rate mortgage for customers.
The bank said on Tuesday that any customer with deposits of more than 7.5 million Danish krone ($1.1 million) will receive an interest rate of negative 0.6% to store their money.
This means that every year the balance in the account will decline. With the minimum deposit of 7.5 million krone, that equates to a loss of around 44,000 krone, or $6,600.
In a statement on the negative rate, Jyske Bank's CEO Anders Dam said: "The negative interest rate environment that has affected the Danish market since the spring of 2012, only interrupted in 2014, now seems to be of a rather permanent nature."
"Market expectations indicate that the negative interest rate environment will last for several years."
Dam said that in recent years Jyske's private banking arm has not been able to make money from deposits, citing a "large deficit" which keeps growing as clients deposit more.
The negative rate appears to be designed to reverse the trend.
The logic behind charging customers to hold their money in the bank is simple. Banks tend to make a loss on providing current account services, but have traditionally been able to offset those losses through loans, mortgages, and other products that bring in interest and fees.
However, with interest rates at rock-bottom levels for several years now, providing a service that costs the bank money to customers for free is no longer financially viable.
Read more: How Europeans' household net worth is 'now exclusively driven' by negative interest rates
There is another reason behind the move. By making it cost money to save money, banks hope to encourage their customers to spend, putting money back into the economy and stimulating growth.
Central banks across Europe, including those in Denmark and Sweden, as well as the European Central Bank, have been using negative interest rates for years.
Central banks implementing negative rates on financial institutions aim to encourage them to lend money to customers, thus stimulating activity, and helping boost the economy. What Jyske Bank is doing is driven by effectively the same logic, but on a smaller scale.
Read more: Economists never imagined negative interest rates - now they're rewriting textbooks
Reuters reported Tuesday that UBS, the Swiss banking giant, is considering implementing a negative interest rate of 0.75% for clients with deposits over 2 million Swiss francs (roughly $2 million).
Jyske Bank's introduction of a negative interest rate for savers comes just weeks after it announced that it will offer customers a negative interest rate mortgage.
The mortgage, a 10-year fixed-rate with an interest rate of -0.5%, means that customers will pay back less than the amount they borrowed.
"It's another chapter in the history of the mortgage," the Jyske Bank housing economist Mikkel Høegh told Danish TV when it launched.