Gold doesn't pay interest. But it doesn't have a negative interest rate either.
If you take your gold bars down to the bank or to a warehouse, they will absolutely charge you to store them (from what I can Google, on the order of 1% per year).
Swiss alternative bank breaks negative rates taboo
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Re: Swiss alternative bank breaks negative rates taboo
#22Before you jump in with outrage or bafflement, consider that this isn't all that shocking, nor is having to pay a bank to keep your money totally unprecedented. Consider: if you want someone else to store your car, or your junk, or your data, you have to pay them. The only reason banks normally pay you instead is that your deposits are so useful (for making loans, and profit on those loans), that it's worth it to pay…
"Consider: if you want {to let} someone else {drive around in} your car {and rent it out to other people} ... you have to pay them."
Excuse me?
Re: Swiss alternative bank breaks negative rates taboo
#23This happened 4 years ago for institutional clients, see: http://www.wsj.com/articles/SB100014240531119033665045764881...
Re: Swiss alternative bank breaks negative rates taboo
#24Gold doesn't pay interest. But it doesn't have a negative interest rate either.
Gold does pay interest if you lease it. See: http://www.kitco.com/market/LFrate.html - note that sometimes this goes negative for all kinds of weird reasons (see: http://ftalphaville.ft.com/2012/01/13/831971/goldman-on-meta...). disclaimer: I don't work in capital/metals markets so if you do and you're reading this please add to the conversation.
Re: Swiss alternative bank breaks negative rates taboo
#25Gold doesn't pay interest. But it doesn't have a negative interest rate either.
If you take your gold bars down to the bank or to a warehouse, they will absolutely charge you to store them (from what I can Google, on the order of 1% per year).
This however isn't the same as depositing $ in a bank though, where you're "loaning" your $ to the bank who will in turn loan it out to someone else (hopefully earning interest in the meantime!). If you were simply giving $ to the bank to safeguard and not loan to anyone then you would imagine they'd charge you as there would be no potential interest earnings on your "deposit"
Re: Swiss alternative bank breaks negative rates taboo
#26Before you jump in with outrage or bafflement, consider that this isn't all that shocking, nor is having to pay a bank to keep your money totally unprecedented. Consider: if you want someone else to store your car, or your junk, or your data, you have to pay them. The only reason banks normally pay you instead is that your deposits are so useful (for making loans, and profit on those loans), that it's worth it to pay…
You're correct that if someone has to store a physical item (like a car), there are costs related to storage. In the case of 21st century currency, however, almost none of your money actually exists in physical cash [1], the vast majority simply exists as accounting entries, stored as digits in computers (seriously).
Traditional banking typically consists of two SEPARATE functions.
1) The first function is the safe-keeping of deposits (for which a fee would normally be assessed as an actual commodity (gold, silver, etc.) would be stored, and you have to pay rent, security, etc. related to the safekeeping of that commodity).
2) The second function is loan intermediation (that is, matching up people who want to invest their money with people who want to borrow it -- as an investor you would receive a return on your money less fees assessed by the bank for determining who should receive loans). Certificates of Deposit (CDs) are the classic example of a bank engaging in this second function. CDs require you to relinquish your ability to withdraw your deposits for an agreed upon term.
Modern banking, however, muddles these two functions. Paper bills no longer represent specific quantities of physical commodities held for safe-keeping by the bank. They simply represent themselves, pieces of paper that people continue to accept as money because they were slowly weaned off of using physical commodities.
Further, banks are allowed to simultaneously loan out the money you have sitting in a savings account (and pay you interest on it) but also give it to you in physical cash should you demand it.
How can it be that your cash could be in two places at the same time (invested in a loan but also available for withdrawal)?
If you loaned your car to a bank, and they lent it out to someone else, could it simultaneously be available for retrieval by you and also continue to be loaned to someone?
Obviously not, it's no different with money. But, because cash is fungible, and most people don't withdraw all their money at the same time, banks are able to continue this charade, pretending like your cash is available for withdrawal while simultaneously lent out to someone else.
The only time that the charade becomes readily apparent is during financial crises. During crises people get nervous and start demanding their deposits in cash, if everyone should do so (a run on the bank), the bank would not have enough cash on hand to make good on their contractual obligations. The only reason the charade continues is because central banks loan banks more money during crises by printing more money out of thin air (of course, there's no such thing as a free lunch, money printing debases the currency, so anyone who holds cash loses).
[1] Estimates vary, but the consensus seems to be that less than 10% of "money" actually exists in printed bills/coins:
(a) Estimate 8.3% -- https://www.quora.com/What-percentage-of-the-worlds-money-is-printed-in-cash-bills-coins
(b) Estimate 8% -- http://www.howstuffworks.com/currency6.htmRe: Swiss alternative bank breaks negative rates taboo
#27For those interested in reading some academic literature related to the subject, read Fischer Black's Interest Rates as Options.
Re: Swiss alternative bank breaks negative rates taboo
#28Earlier quoted context omitted.
If you take your gold bars down to the bank or to a warehouse, they will absolutely charge you to store them (from what I can Google, on the order of 1% per year).
This however isn't the same as depositing $ in a bank though, where you're "loaning" your $ to the bank who will in turn loan it out to someone else (hopefully earning interest in the meantime!). If you were simply giving $ to the bank to safeguard and not loan to anyone then you would imagine they'd charge you as there would be no potential interest earnings on your "deposit"
That is essentially what this bank is responding to. They can't make enough lending the money as it takes to hold. So they charge you a storage fee in the form of negative interest.
The most interesting thing to me is that they are charging big depositors more than small depositors. This seems crazy given the costs of banks is usually considered fixed per dipositer. This could be more about the banks politics than actual banking costs, I suppose.
Re: Swiss alternative bank breaks negative rates taboo
#29Before you jump in with outrage or bafflement, consider that this isn't all that shocking, nor is having to pay a bank to keep your money totally unprecedented. Consider: if you want someone else to store your car, or your junk, or your data, you have to pay them. The only reason banks normally pay you instead is that your deposits are so useful (for making loans, and profit on those loans), that it's worth it to pay…
"Consider: if you want {to let} someone else {drive around in} your car {and rent it out to other people} ... you have to pay them." Excuse me?
I was just referring to storage, like in a parking garage or something. Sorry if my run-on sentence made it a little obtuse :-)
Re: Swiss alternative bank breaks negative rates taboo
#30Before you jump in with outrage or bafflement, consider that this isn't all that shocking, nor is having to pay a bank to keep your money totally unprecedented. Consider: if you want someone else to store your car, or your junk, or your data, you have to pay them. The only reason banks normally pay you instead is that your deposits are so useful (for making loans, and profit on those loans), that it's worth it to pay…
Out of curiosity what would ways to mitigate that? Real Estate appreciation/rent or index funds?