Small firms and traders who use business current accounts have been alarmed by the news that they could face interest charges simply for holding cash on deposit.
This week, Royal Bank of Scotland – the parent company of NatWest – has written to thousands of business customers to warn them of the potential impact of further falls in interest rates.
The bank has told account holders that, as a result of low global rates, it could be forced to charge them for credit balances – thereby effectively introducing negative interest rates.
There is considerable speculation that, as a result of falling business confidence in the wake of the EU referendum vote, the Bank of England’s Monetary Policy Committee will cut the UK base rate when it meets next week; this could see rates fall from 0.5% to 0.25% or even lower. Such a move could make negative rates for businesses, and possibly even consumers, more likely.
Jason Kitcat, Micro-business ambassador for Chorus, said:
“While many business accounts already impose monthly charges, the psychology of introducing negative interest rates is a further blow to business confidence at a difficult time. We don’t think banks should be pinching pennies from the smallest firms in this way.”
Stimulating the economy
Negative interest rates have been discussed by policymakers in the UK in recent years as a possible way to stimulate the economy. However, such proposals have generally been limited to the Bank of England charging institutions negative rates on their central bank deposits as a way to encourage commercial and consumer lending.
The Japanese government introduced negative rates earlier this year, while the European Central Bank and the Swiss National Bank also charges commercial banks to make deposits. But in none of these cases has this led to negative rates for consumers or businesses.
A further cut in rates in the UK could mean even more woe for savers, who have faced historically low returns for most of the last decade. As far as mortgage borrowers are concerned, there could be a small fall in average rates.
But since the financial crisis in 2008, lenders have often been reluctant to pass on the full benefit of central bank rate cuts to borrowers, even on loans which are supposed to be pegged to the Bank of England rate.
Meanwhile, business groups have demanded that account providers keep customers informed about possible changes in terms and conditions. Kitcat added:
“While a worrying development, such changes are also a reminder to all micro-businesses to shop around as there may well be another bank out there which will be better and cheaper for their needs.”