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.

The effects of interest rates are often not directly felt but play out over a long time as valuations of real-estate and other assets adjust.

At Horizon65, we created a mobile app that enabled you to check the effect of high interest rates on your savings and to simulate potential investments that can defend against it.

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