How do negative interest rates work?

Negative interest rates occur when central banks or other monetary authorities set interest rates below zero. In this scenario, instead of earning interest on deposits, depositors are charged a fee to keep their money in the bank. The aim of negative interest rates is to encourage spending and investment, as opposed to saving. When borrowing becomes cheaper, individuals and businesses may be more inclined to take out loans, increasing economic activity. Negative interest rates can also make a country’s exports more competitive by lowering the value of its currency. However, negative interest rates can also have unintended consequences, such as reducing bank profitability and potentially leading to higher fees for consumers.