Coronavirus and Negative Interest Rates: What It Means for You

A greedy businessman in glasses clings to his piggy bank
Photo by HBRH / Shutterstock.com

Thanks to the coronavirus-related financial crisis, we’ve broken more records in U.S. financial markets: Interest rates on some government securities have now dropped below zero, with one hitting a new low.

As of this morning, three-month Treasury bills on the secondary market were paying negative 0.036% — a record low. One-month Treasury bill rates also went negative.

This is the first time since 2015 that either rate has gone negative — meaning that instead of earning interest, investors will get back less money than they put into these government securities.

How can this happen? Because investors — especially the big, institutional kind — are so interested in safety and liquidity, they’ll even accept negative rates to achieve it.

Since you’ll probably be seeing more of this strange phenomenon, following is a brief explanation, starting with a video I originally did last September.

Why rates are so low in general

Low rates help the economy in several ways. For example:

  • Both consumers and companies are more likely to spend if they can borrow money inexpensively. After all, the less interest we pay, the more money we have — and the more money we spend, the more the economy grows.
  • Low rates cause a nation’s currency to weaken relative to that of other countries, which makes it cheaper for other countries to buy our stuff. This boosts exports, stimulating the economy.
  • Low rates can help the stock market: Since businesses pay less interest, they’re more profitable. Also, when bank interest rates are terrible, investors seek out options with higher returns, like stocks.

So, although low rates aren’t good news for savers, they can get the economy moving. And that’s why we’re seeing such low rates today.

Understanding negative rates

I’ve been doing personal finance news for 30-plus years, and I’d never heard of negative rates until a few years ago.

Negative rates, as the term implies, are the mirror image of typical rates. Normally, when you put money in the bank, the bank pays you interest. But when rates turn negative, you’re literally paying the bank to hold your money.

We don’t have those kinds of negative rates. At least not yet. The negative rates that began in the Treasury market yesterday happened on the secondary market, the place where Treasuries are bought and sold after they’ve been issued.

Why would any investor accept negative rates? After all, certificates of deposit (CDs) and some savings accounts at the bank are paying close to 2%, and they’re insured. So, why don’t these big institutions just put their money in the bank?

Remember that bank deposits generally are only insured to $250,000 per depositor. Institutional investors are trying to protect hundreds of millions of dollars. The safest place on the planet to put money — the only truly risk-free investment — is U.S. Treasury securities. Since Uncle Sam can literally print money, he can’t default.

Could consumers see negative rates?

It’s possible negative rates could flow through to the consumer. In other words, we could be forced to pay to keep money in a savings account. Or, on the other side of the coin, we could theoretically get a mortgage that pays us instead of us paying the lender.

The latter has already happened in Scandinavia.

Last year, a Danish bank started offering mortgages with 0% and negative rates. From The Guardian:

“Jyske Bank, Denmark’s third largest, has begun offering borrowers a 10-year deal at -0.5%, while another Danish bank, Nordea, says it will begin offering 20-year fixed-rate deals at 0% and a 30-year mortgage at 0.5%.”

With a negative-rate mortgage, instead of paying interest, you’d literally pay back less than you borrowed.

Pretty wild, isn’t it? But it’s not the norm. In countries with a negative-rate policy, it’s usually banks that are being charged to park their money in a central bank, not consumers. Nor, despite the example above, are consumers typically able to get paid to borrow.

What’s a saver to do?

For one, use certificates of deposit to lock in rates now, as we’ve suggested in multiple recent articles. It’s simple to do. Just visit this page of our Solutions Center to see the best CD rates today, as well as the best savings rates.

You can also consider other alternatives to traditional savings accounts. Learn more in articles like “How to Earn More Money on Your Savings.”

Bottom line? The coronavirus has turned this economy on its head. And it’s starting to look more likely it will do the same to savings rates.

What’s your take on this news? Sound off by commenting below or on our Facebook page.

How to find cheaper car insurance in minutes

Getting a better deal on car insurance doesn't have to be hard. You can have The Zebra, an insurance comparison site compare quotes in just a few minutes and find you the best rates. Consumers save an average of $368 per year, according to the site, so if you're ready to secure your new rate, get started now.

Read Next
Replace These 8 Things — for Your Health and Your Budget
Replace These 8 Things — for Your Health and Your Budget

Being frugal isn’t smart if you put off replacing these things. Waiting too long can cost money or even endanger your health.

Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?
Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?

You could save more than $30,000 by setting aside these costly expenses for just one year.

7 Deadly Health Mistakes People Make After Age 50
7 Deadly Health Mistakes People Make After Age 50

Simply avoiding these actions, or lack thereof, can improve the odds of a longer, more healthful life.

15 Ways Retirees Can Make Their Savings Last Longer
15 Ways Retirees Can Make Their Savings Last Longer

Study these strategies to make your golden years gleam.

15 of the Fastest-Growing Jobs Today
15 of the Fastest-Growing Jobs Today

Times are tough, but these career fields are thriving.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
Social Security Checks Likely to Grow This Much in 2021
Social Security Checks Likely to Grow This Much in 2021

The federal government recently released a key statistic that gives clear insight into what next year’s COLA will be.

This Gas Station Scam Is Victimizing More Drivers
This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

21 Things You Should Always Buy at a Dollar Store
21 Things You Should Always Buy at a Dollar Store

Dollar stores have great bargains on both everyday and occasional purchases.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

This Is the Most Popular Age for Claiming Social Security
This Is the Most Popular Age for Claiming Social Security

Both men and women are most likely to start receiving Social Security benefits at this age.

7 Unusual Ways to Declutter Your Home
7 Unusual Ways to Declutter Your Home

Tired of possessions weighing you down? Here are seven ways to declutter painlessly and effectively.

6 Things You Should Never Buy at Trader Joe’s
6 Things You Should Never Buy at Trader Joe’s

We love Trader Joe’s for plenty of reasons. But think twice about this handful of products.

Don’t Toss These 7 Household Items — Sell Them
Don’t Toss These 7 Household Items — Sell Them

Here’s how to earn cash as you give new life to these unwanted items.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

6 Legal Documents Retirees Need — but Don’t Have
6 Legal Documents Retirees Need — but Don’t Have

Few retirees have these documents that are crucial to their golden years — especially during a pandemic.

5 Awesome Places You Can Retire Overseas on $2,000 a Month or Less
5 Awesome Places You Can Retire Overseas on $2,000 a Month or Less

In this week’s podcast: tips on retiring overseas — from someone who’s been helping American expats for decades.

10 Deep Discounts Available on Amazon This Friday
10 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

Eat This Food If You Want to Avoid Alzheimer’s Disease
Eat This Food If You Want to Avoid Alzheimer’s Disease

One type of food associated with the Mediterranean diet offers especially large benefits.

11 Expenses That Quietly Drain Your Wallet
11 Expenses That Quietly Drain Your Wallet

It’s scandalously easy to overspend in these areas of your life.

18 Amazon Purchases That We Are Loving Right Now
18 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

9 Dumb Ways You Are Ruining Your Home Value
9 Dumb Ways You Are Ruining Your Home Value

Homeowners, beware these mistakes that can drive away potential buyers.

7 Tips for Building an Emergency Stockpile
7 Tips for Building an Emergency Stockpile

A pandemic or natural disaster could leave you reliant on your existing food supply. Is your pantry prepared?

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

15 Outrageously Overpriced Products — and How to Save on Them
15 Outrageously Overpriced Products — and How to Save on Them

Retailers mark up products by hundreds of times their cost — but you don’t have to pay the premium.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.