British banks are readying to work some voodoo in an effort to drum up profits from their business customers.
The Royal Bank of Scotland and subsidiary NatWest have written to business customers changing the terms and conditions of their accounts to allow negative interest rates.
The crazy idea is that the banks will charge customers to keep money in their accounts rather than pay interest.
Charging customers negative rates is termed ’voodoo banking’ and is already in place in some countries.
Voodoo banking spreads
Bank of England governor Mark Carney has so far dismissed the idea of negative interest rates.
“We think we could move base rate closer to zero but have not said we have an appetite for negative interest rates,” he said in April.
Japan’s banks offer negative interest rates to customers, while the European Central Bank has a 0.04% negative rate for banks and institutional money held on account.
The Swiss central bank also charges other banks a negative rate of 0.75% to hold their cash.
Dutch bank ABN Amro is also considering negative interest rates for customers.
Bankers and economists controlling the yen and euro hoped negative rates would encourage businesses and consumers to spend and borrow more money because interest rates were so cheap.
However, the basic premise is voodoo spenders need to have the confidence to take on debt and to spend the cash, which does not seem to be happening with either currency.
Negative interest rates
In Britain, RBS and NatWest confirmed 2.1 million business customers will receive letters detailing the possibility that negative rates may be introduced.
The customers include churches, community councils and other community groups. All would see the value of any cash deposits fall not only in line with inflation but by the fee they would pay the bank to hold their cash as well.
In the letter, NatWest said: “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.”
A spokesman was quick to allay fears other customers would also face negative rates by confirming the bank had no plans to introduce them for personal accounts.