Small business owners banking with Natwest have been told that they may be charged to make deposits.
The bank sent letters to 850,000 business customers indicating that it may begin to charge interest on accounts in credit in the event that the base rate turns negative.
Natwest is a subsidiary of the Royal Bank of Scotland, which was bailed out by the taxpayer following the financial crisis. The government retains a 73 per cent stake in RBS.
Natwest admit they could charge interest on credit balances
As the Guardian reports, the bank wrote: “Global interest rates remain at very low levels and in some markets are currently negative. Dependent on future market conditions, this could result in us charging interest on credit balances.
“We will consider any necessary action in the event of the Bank of England base rate falling below zero but will do our utmost to protect our customers from any impacts.”
The base rate remains at its historic low of 0.5 per cent, and speculation mounts that it may be cut further.
The Bank of England’s Monetary Policy Committee will vote on whether to cut it further on Thursday.
What should small businesses do about negative interest rates?
The Federation of Small Businesses responded to Natwest’s warning by offering some advice for small business banking customers.
In a statement, FSB national chairman Mike Cherry suggested that business account customers should consider switching to a “more competitive” alternative bank. The FSB is a partner in the Business Banking Insight online service, which gives businesses the opportunity to compare and read reviews of business accounts, credit cards, loans, and more.
It may also be worth investigating some of the lesser-known banks. While the High Street still dominates business banking, the smaller ‘challengers’ also offer services that may be better deals.
It’s also important to understand the variations in fee structure. Some banks charge a monthly fee, while others charge per transaction – for example, you may have to pay every time you cash a cheque.
What is a Negative Interest Rate Policy (NIRP)?
In layman’s terms, NIRP is a policy of decreasing the interest rate lower than zero per cent, meaning people will essentially pay interest on their saved and/or deposited assets.
Japan has made the bold move of introducing NIRP in recent times, with a minus 0.1 interest rate, whilst European countries such as Switzerland and Denmark have also toyed with the idea.
Why use negative interest rates?
In periods of deflation, negative interest is used to spark spending and investment, rather than keeping cash saved up in a bank account.
The overall aim is to stabilise the economy, although critics argue that it instead promotes investment in risky assets.
What do you make of Natwest’s move? Let us know below.