The days of high returns on your savings in the bank are over, and more and more banks are introducing negative interest rates on both business and personal accounts. But what does negative interest really mean and how can you avoid negative interest rates so that you don't lose money by keeping your wealth in the bank?
Negative interest rates shake up the narrative we've always heard that it's good to have money in the bank, where you can sit back while you earn interest and your money grows.
Because in reality, the reality is a little different at the moment. Due to the negative interest rates that many are experiencing from their bank, your savings are actually slowly being eaten away.
The Danish National Bankhas published statistics showing that Danes pay an average of DKK 7 for every DKK 10,000 they have in the bank. This may not sound like much, but over a number of years, it adds up. And there are no signs that the negative interest rates will reverse - on the contrary, it will cost even more to have savings in the bank.
That's why it's more relevant than ever to look at alternatives to bank savings to avoid negative interest rates. In this blog post, we'll dive into how you can turn things around and avoid negative interest rates.
Read on and take back control of your finances.
Negative interest rates occur when the interest rate on a savings or investment is set to a negative value. Interest rates in the Danish market go up and down, and these days more and more banks are requiring their customers to pay negative interest on both business and personal accounts with high balances.
This means that instead of earning money by keeping money in the bank, you have to pay the bank to store your money.
Negative interest rates typically occur during unusual economic conditions where central banks attempt to stimulate the economy by lowering interest rates.
The idea is that it encourages banks to lend money instead of keeping it in the central bank, as it now costs money to keep it there. This should, in theory, lead to more lending, which increases consumption and investment, thus stimulating economic growth.
It should be as unattractive as possible to simply keep your money in the bank, and this is where negative interest rates come into play.
First and foremost, for many, these negative interest rates will mean that it costs money to keep savings in the bank. If your bank has introduced negative interest rates, you'll find that your savings are slowly shrinking, even if you're not spending from them. This can be frustrating, especially if you've worked hard to save.
For example, let's say you have 200,000 in your savings account. Now your bank introduces a negative interest rate of -0.75% per year. This means that after one year, your savings - if you don't make any extra deposits - will be DKK 198,500. i.e. DKK 1,500 less.
This may seem counterintuitive as we are traditionally used to receiving interest - a reward - for letting the bank use our money. But in an economic climate where central banks have put interest rates in negative territory to stimulate the economy, it's a reality for many savers.
Therefore, negative interest rates can also affect your decision on where and how to keep and invest your money. Some people choose to invest more in stocks, bonds or other assets to avoid negative interest rates. Luckily, if you're curious about your options for avoiding negative interest rates, we'll get into that further down in the blog post.
Also read about brokerage fees to make sure you're well prepared.
It's important to note that negative interest rules can vary significantly from bank to bank. Some banks introduce negative interest rates for all their customers, regardless of how much they have in their account. Other banks set a limit so that only customers with savings above a certain amount are affected by negative interest rates.
For example, a bank may decide that only customers with more than DKK 250,000 in their account will pay negative interest. If you have less than this amount, your interest rate will be 0% and you will neither make nor lose money on your savings.
In addition, the interest rate for negative interest rates can also vary. For example, one bank may introduce a negative interest rate of -0.6%, while another bank may have a negative interest rate of -0.75%.
It is therefore important to stay informed about the rules of your own bank and compare the terms of other banks. This way, you can make the best decision for your finances in a time of negative interest rates.
If you're experiencing negative interest rates with your bank, you're probably very interested in hearing about how you can avoid them. There are several ways to do this, and what you might choose depends on your risk tolerance, among other things.
One of the most effective ways to avoid negative interest rates is to use your money in a meaningful and value-adding way. Have you been thinking about renovating your home but have been putting it off because of the cost? Then now might be the perfect time to put those plans into action.
Renovating your home can not only improve your quality of life, but it can also increase the value of your home. A newly renovated kitchen or bathroom can add significant value to your home, which can be a huge advantage if you're thinking of selling in the future. Even small projects like painting the walls or updating the lighting can make a big difference.
It's not just renovation projects that can be a good investment. Perhaps you've considered taking a continuing education course, starting a new hobby or investing in your health by buying a gym membership. All of these things can enrich your life and many will think it's a better use of your money than letting it disappear at negative interest rates.
Another effective strategy to avoid negative interest rates is to use your money to pay off your debt faster. If you have a home loan, car loan or student debt, you may want to use some of your savings to pay off these loans.
By paying off your debt faster, you can save money on interest over time. This can be especially beneficial if the interest rate on your debt is higher than the negative interest rate on your savings.
In addition, being debt-free can give you greater financial freedom and security.
It's important to consider which debts make the most sense to pay off first. Generally, it's a good idea to start with the debt that has the highest interest rate. However, it may also be worth considering other factors, such as the size of the loan and how much time you have left on the loan.
Another way to avoid negative interest rates is to transfer a portion of your money to your retirement savings. Not only do pension savings have tax advantages that can make them an attractive option, but you're also taking advantage of the compound interest effect, which is becoming more powerful every year.
By increasing your contributions to your retirement savings, you are investing in your future financial security. This can be particularly beneficial if you're close to retirement age, but it can also be a good strategy for younger people who want to secure stable finances in their old age.
It's important to note that money invested in a retirement savings plan is typically locked up until you reach retirement age. Therefore, it's important to ensure you still have enough liquid funds to cover your current expenses and any emergencies.
Another strategy to avoid negative interest rates is to invest your money in real estate, stocks or other securities. These investments can potentially provide a higher return than a regular savings account, and they can also allow you to build a more diversified portfolio.
Investing in real estate can be a good option if you have a large amount of savings. Real estate has historically been a stable investment and can also generate income through rental income. Furthermore, increases in property values over time can help increase your wealth.
Shares and other securities can also be attractive investment options. While these investments can be more volatile and thus carry a higher risk, they can also provide higher returns over the long term.
Remember, it's always important to plan these expenses carefully. While it may be tempting to spend all your money to avoid negative interest rates, it's important to have an emergency savings for unforeseen expenses.
Read our guide to investing here.
Through Fundbricks, you can easily get started with real estate investing at a fraction of the normal investment cost and avoid negative interest rates.
At Fundbricks, we help entrepreneurs realize their real estate projects, but we also help people who want to see their money grow and earn interest on their savings instead of paying negative interest.
Through crowdlending, you can lend your money for the realization of new real estate projects. The loan carries interest for the borrower, which represents your return on investment (usually between 9-13% return per year).
In other words, you get your money back over a certain period of time from the borrower, who also has to pay interest on the loan. This interest goes directly to you.
When you invest in real estate projects with Fundbricks, you get an average of 9-13% interest p.a. and you are secured by a mortgage on the project.
And where 'traditional' real estate investing typically requires huge amounts of money, at Fundbricks you can get started for as little as DKK 10,000.
Are you done paying to save? Create an account and start investing in solid Danish real estate projects and avoid negative interest rates.
Are you interested in what our previous customers say about us? Then you can read reviews about us on Trustpilot, where we currently have a very good score of 4.4/5.
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