Negative interest rates take a bite out of wealthy Swiss bank customers' accounts

The Swiss banking giant Credit Suisse will soon start applying negative interest rates to its wealthiest clients.

Adopting a growing practice in some parts of the world, the Geneva-based lender is transferring the cost of negative interest rates charged on its reserves to its customers, requiring them to pay a fee for deposits over a specified level.

While the term "negative interest rates" may seem an oxymoron, the concept is simple: It indicates banks are charging interest to depositors, instead of paying it as would normally be the case.

An interest rate of 0.75 percent will be charged to private individuals and corporate clients with cash holdings larger than 2 million Swiss francs, the bank said, while corporate clients with holdings larger than 10 million Swiss francs will pay interest of 0.85 percent.

Negative interest rates are sometimes used by central banks to boost a stagnant economy. That typically prompts lenders to make more loans, where they can charge interest rather than pay it, and to transfer the costs to their own clients.

Doing so can broaden the effects of the negative-rate stimulus, prompting wealthy individuals and businesses to spend or invest money rather than park it in bank accounts where they are losing money.

Five central banks currently have interest rates below zero: those in the countries of Japan, Sweden, Denmark and Switzerland in addition to the European Central Bank.

While Alan Greenspan, the former head of the U.S. central bank, warned in September that negative interest rates might spread to America, the Federal Reserve has so far shied away from them and Chairman Jerome Powell -- who now holds Greenspan's former role -- says they're not an "ideal tool."

The charges will begin on Nov. 15 for Credit Suisse's corporate clients and on the first day of 2020 for private individuals.

Bank representatives didn't immediately respond to queries about how the negative rates would affect customers with holdings in currencies besides Swiss francs.


Other banks have recently begun assessing similar charges. The Financial Times has reported that UBS would apply a negative interest rate of 0.75% to customers who deposited more than 2 million Swiss francs. The Italian bank UniCredit plans to adopt negative rates, too, the newspaper said.