What jobs do you pay for generating interest

Buying a house with negative interest? All of which suddenly becomes possible

Vienna - A few years ago there were a few simple certainties in banking. If you put your money in a savings account, you get interest. If you want to borrow money, you have to pay some. Similar rules also apply to states. Countries like Austria and Germany got loans on reasonable terms, possible bankruptcy candidates like Spain and Portugal had to pay horrific interest rates.

Today it's completely different. The financial world is upside down. The major central banks have cut interest rates to or even below zero in hopes of stimulating the economy. In addition, there is currently a growing fear of a global downturn. This is driving interest rates further down - with extraordinary consequences.

1. He who saves pays

Dagobert Duck bathes for hours in the cash in his money storage. If even a coin is missing, he will notice it immediately. Guarding your treasure takes time, but gives the cartoon character endless fun. Otherwise his behavior would have been completely irrational: Why build an expensive storage facility when you can also take the money to the bank and collect interest there?

What has been a certainty for ages is no longer a certainty today. Increasingly, bank customers have to pay negative interest for the privilege of entrusting their money to their house bank. In Germany, high private balances are already affected at numerous credit institutions: Over 100 banks collect negative interest rates from their savers. The development in Switzerland is similar. UBS recently announced that it would collect penalty interest: Anyone who deposits more than EUR 500,000 with the bank must pay 0.6 percent to the institute once a year.

In Austria there have been negative interest rates for companies since last year. Private customers have not yet been affected: According to a decision by the Supreme Court, banks are not allowed to charge negative interest on savings balances. This cannot be ruled out with current accounts.

Why do banks charge negative interest rates? In addition to higher account management fees, this is a possibility for the institutions to pass their own penalty interest on to the customers. If credit institutions hold central bank money above a minimum level, they currently have to pay interest to the European Central Bank (ECB) themselves.

The bank customers take part because there is no space under the mattress for millions of euros. For smaller balances, the option of hoarding cash would be more attractive. Not least because of this, they are not affected.

2. Loans at negative interest rates

Credit institutions, on the other hand, are struggling to find customers who will borrow money from them. In the eurozone, the ECB financially rewards banks that are eager to lend, which has driven home builders' interest rates down. On average, a loan for buying a home in Austria currently has an interest rate of less than two percent. Ten years ago, five to six percent was normal.

In Denmark, the development is even more extreme: Jyske Bank advertises that it is giving house builders a loan for ten years at an interest rate of minus 0.5 percent. Technically, it works like this: Anyone who borrows money from Jyske has to repay monthly installments. But the amount that the customer owes the bank drops month after month more than the installment payment amounts to. The fact that the interest rate is negative does not mean that you are actually paying back less than you borrowed. This is ensured by fees and expenses.

3. Crisis states in paradise

Do you remember? In spring 2011, Portugal was on the verge of bankruptcy. The country could no longer afford the interest on loans on the market. The other euro countries and the International Monetary Fund (IMF) had to step in and help out Lisbon with emergency loans. A year later it was Spain's turn. And today? Donors are offering Spain interest so that the country can borrow from them. Correctly understood: Spain does not pay interest, but gets it when it goes into debt. Madrid's nine-year loans have negative interest rates. The effective interest rate is currently zero on ten-year government bonds. It is similar with Portugal.

The ECB bought massive amounts of government bonds, thereby driving up the prices for the papers and down the interest rates. In the case of government bonds, prices and interest rates always develop in opposite directions. There are currently fears of a new recession. Bad economic data is coming from Germany, inflation in the euro zone is well below the target value of the ECB. As a result, many investors expect that the central banks will soon become active again and begin again to depress interest rates. This would increase prices. Investors are increasingly buying government bonds in order to benefit from price gains, says Felix Düregger, interest rate and currency strategist at Schoellerbank.

4. Short loans are more expensive

Typically, the longer borrowers take out a loan, the more money they have to pay. But at least in the past week, that was different in the case of the world's most important economy: two-year government bonds in the US yielded a higher yield than ten-year bonds.

This so-called inversion of the yield curve is a historically reliable warning signal that an economic downturn is imminent. But in times of unconventional monetary policy, even that is no longer guaranteed, according to experts. Because the central banks have distorted the market signals with their multi-billion dollar interventions. (Leopold Stefan, András Szigetvari, 8/20/2019)