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Could Swiss banks start charging retail depositors negative interest? One already has. More might follow.

In mid January 2015 the Swiss National Bank (SNB) started charging negative interest on certain deposits placed with it in an attempt to make holding Swiss francs less attractive. After abruptly abandoned its currency cap it needed a new tool to rein in the currency’s rise.

Since then Swiss banks have been announcing plans to pass this cost on to depositors. In July 2015 the Swiss newspaper Le Temps reported that UBS had introduced negative interest charges on large deposits, targeting “the large account balances of institutional and company clients.” The bank said it had no plans “for the moment to introduce similar charges on the deposit balances of retail clients.” The newspaper added that Credit Suisse was following a similar policy. Other banks and wealth managers such as Julius Baer have made similar moves.

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First negative interest charges for retail customers
On 17 October 2015, RTS reported that Alternative Bank Switzerland had announced plans to charge retail depositors negative interest from 1 January 2016, making it the first Swiss bank to announce such a move.

A number of countries now have central banks charging negative interest. Denmark and Switzerland both charge -0.75, Sweden charges -1.1% and the European Central Bank (ECB), which sets rates for the Euro, is currently charging -0.2%.

Until recently it was thought that zero was the lowest interest rates could go. Beyond zero people would withdraw zero-yielding cash and store it somewhere, like under a mattress. In practice the costly logistics of managing cash and keeping it secure have limited this practice.

This could change however. A Bloomberg survey of economists suggests the SNB’s charge on sight deposits could go as low as -1.25%. The move towards even lower rates could start on 3 December 2015 when the ECB makes its next announcement. A Bloomberg survey suggests the ECB might shift rates from -0.2 to -0.3. This could trigger rate cuts in other countries to levels that would make it harder still for banks to swallow the costs being imposed on them by their central banks.

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