A negative on negative rates?

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The Bank of England has been discussing "negative interest rates"
The Bank of England has been discussing "negative interest rates" Photo: Press Association

Imagine a world where you put money in the bank, saving for a rainy day. But when the rainy day came, you actually got less back from the bank!

Negative interest rates, just suggested by the Deputy Governor of the Bank of England, sound like just that.

Paul Tucker told MPs this morning that it would be an "extraordinary" thing to do. But could it actually be done without causing chaos?

Deputy Governor of the Bank of England Paul Tucker

The Bank is thought to be looking at how to cut the rate of interest the banks get for our deposits, without cutting the official base rate that influences how much savers get back.

The Deputy Governor of the Bank of England appears to be suggesting if the banks got less back for the cash they look after they would be more likely to lend it out.

Basically money sat with the bank would lose value, so the risk of lending the cash out would be more tempting.

The Bank of England
The Bank of England is may decide radical action is needed to kickstart the economy. Credit: Press Association

That may be so, but the Bank is a long way from finding a way they could actually do this without making life impossible for building societies and punishing savers even further.

So we are a long way from rates dropping below zero.

But the fact the Bank is even considering the move tells us two things - they don't think moves made so far, like Funding for Lending are doing enough to get money out to businesses and households.

And Bank officials believe the economy is so stuck in the doldrums that radical action may be what is required to unblock the system.