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Negative interest on savings: what should I do with my savings?!

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Published: 16/12/2019 | Update: 18/03/2020

Negative interest on savings: what should I do with my savings?!

You probably didn’t miss this news: for the first time in Dutch history there’s a chance that consumers won’t receive interest on their savings, but instead will have to pay interest. From that moment on, it will cost you money every month to deposit savings at your bank. Luckily, if this negative interest on savings goes into effect, there are a few other ways in which you can still earn some money from your savings.

piggy bank

Cause of low interest rate on savings

Most experts point their fingers at The European Central Bank (hereafter ECB) as the most important cause of the low savings interest rate.

The ECB is responsible for the European financial system. One of their objectives is to increase spending in the Eurozone and reducing the deposit interest rate is a way to achieve this. Deposit interest is the rate at which banks (such as ING, Rabobank and ABN) can deposit their excess money at the central bank and it’s currently -0.50%.

When this is lowered by the ECB, banks will consequently lower their interest rate for consumers. As a result, saving money will become less advantageous for consumers and spending money or investing will become more appealing. For this reason, it’s currently also relatively cheap to take out a mortgage, or to borrow money. This has a positive effect on the economy, since more money is being spent by consumers.

Evolution of the savings interest rate

In The Netherlands we love to save. At this moment, there has been more than 350 billion euros saved by all households in The Netherlands.

This money is mainly in the accounts of Rabobank (195 billion), ING (75 billion), ABN (75 billion) and the Volksbank (37 billion). Every year this amount increases: In 2018, for example, this amount increased by 10 billion euros.

The interest received on savings, however, continues to decrease. At most banks, the interest rate on savings at this moment is about 0%. The prediction is that it won’t be long until we reach a negative interest rate on savings - consumers will then need to pay to be able to deposit their money at the bank.

Negative savings

The development of the average savings interest rate in The Netherlands over the past 20 years: from more than 3% to just over 0%.

Ways you can still earn on your savings

Obviously, you don’t want to lose money on your hard-earned savings. That’s why we have compiled different ways for you to make some money with your money!

1. Buy shares

Investing in the shares of listed companies is a great way to build up additional capital. It allows you to buy a share of a company and benefit from the profits and increases in value.

Unfortunately, there are also risks involved. Such as the value of shares drastically dropping. This drop in value means your savings are now worth much less.

In the long term, buying shares is almost always more lucrative than simply saving money. Especially with a negative savings interest rate! Always be well informed about the company you’re buying shares from.

2. Lock up your savings (via a deposit)

If you’re sure that you don’t need your savings for a while, you can choose to lock up your savings. You can do this through a deposit. This means you can’t touch your money for a longer period of time. This also means that the bank has the right to use your savings for a longer period of time.

The minimum time is usually one year. The longer the time period, the higher the interest. In this way, you can still receive interest on your savings.

3. Pay off your student loans or mortgage

Maybe this sounds strange. But by spending your money, namely by repaying loans earlier, you can get a nice return on investment. If you still have an outstanding (student) loan or mortgage, you can choose to repay it.

When you’ve paid your debts, you will no longer have to pay the monthly interest rate on them. By doing so, you can save money every month because these interest payments are higher than what you lose in income on your savings.

4. Store your money on your checking account

If you really want direct access to your money, or if you’re saving for something short term, there is one more option.

Banks may have negative interest rates on savings accounts in the future, however, this won’t affect the money on your checking account. If the interest rate becomes negative, it’s a good idea to store your savings on your checking account. There is no interest paid on this money, but in case of negative savings interest rates, no interest is deducted from it either!

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