Forbes - Coming Soon to America: The Incredible Shrinking Savings Account
Article by Simon Constable in Forbes
Savers are having a hard time in most places, but it’s far worse in Denmark. In the Scandinavian country, some savers must pay the bank to look after their money, not vice versa. Worse still, such a weird phenomenon will likely come to the U.S. sooner or later.
Here’s what you need to know.
Europe is already awash with government bonds offering negative interest rates, including those from Germany and Denmark. That means when you buy a Danish government bond, you get back less than you paid when it matures.
A two-year Danish bond recently offers investors an annual yield of minus -0.8%. That means each year you hold the security you lose 0.8% of the money. That’s about 80 cents on every hundred dollars each year.
The obvious thing is to ditch the bonds and hold cash in a deposit account, right? Even zero interest rates don’t cost you.
Not so fast!
Danish banks decided that anyone with a deposit of more than approximately $100,0000 will be charged to keep their money in the bank, according to a recent report.
If you don't live in Denmark or don't have $100,000 in cash, then this might not be a problem so far. But don't count your blessings just yet. There are reasons to be very afraid for the safety of your cash even if you live in America.
Earlier this month, former chairman of the Federal Reserve Alan Greenspan said with uncharacteristic clarity that negative interest rates would arrive in America, sooner or later.
"You're seeing it pretty much throughout the world. It's only a matter of time before it's more in the United States," he told cable TV network CNBC.
That means all those pennies you saved to keep you safe to help in emergencies would start shrinking the moment you earned them. Think of it as the financial version of trying to run up the downward-escalator. You'll have to run faster than usual to make any headway at all.
To read this article in Forbes in its entirety, click here.