The Royal Bank of Scotland has warned customers that they may be charged to deposit money if the Bank of England cuts the base rate.
State own Royal Bank of Scotland has written to its 1.3 million business customers warning them that the group may charge them for holding cash in their accounts. However, the bank confirmed that it has no immediate plans to charge personal customers.
With the solvency of the banking system in question, why would you deposit your life savings in a bank if you are going to be charged for the privilege? It would be more cost effective to store your money under the mattress or in a safety deposit box.
As the economy begins to stall, the Bank of England is under extreme pressure to reduce rates in an attempt to stimulate the economy. A second survey published on Monday showed that confidence in the UK economy has fallen at the fastest rate since the 2008-2009 economic meltdown.
Governor of the Bank of England Mark Carney appears reluctant to do so as negative rates will cause distortions across the markets and decimate the insurance industry. Instead, Carney has indicated that he would prefer to launch another round of money printing.
The European Central Bank was the first central bank to introduce negative rates in 2014. Since then, the central banks of Japan, Sweden, Switzerland and Denmark have all followed suit. Negative rates are an act of desperation and are a sign traditional that central bank policies have failed. Negative rates have never been implemented in the history of central banking and the long term effects are unknown.