Interest rates could soon be negative

As New Zealand deals with the economic impact caused by the pandemic, there are talks of interest rates dropping into negative territory.

To help boost the economy and encourage lending, the Reserve Bank (RBNZ) has indicated that they could cut the Official Cash Rate (OCR) below zero next year.

What is a negative interest rate?

Interest rates are usually positive, meaning you earn interest on your savings and have to pay it when you borrow.

Negative interest rates occur when central banks like the Reserve Bank of New Zealand charge rather than pay banks or financial institutions for funds held on deposit.

How will this affect you?

Some think that the bank will pay you to borrow and it will cost to save – but this isn’t always the case.

It’s important to note that in most cases, negative interest rates tend to only impact the banks, not customers.

While there have been cases in European countries of customers having to pay to put money into their savings – this is unlikely to be the case for Kiwis.

For everyday borrowers, negative interest rates will mean lower mortgage rates as it will cost less for banks to lend money. Variable interest rates are likely to drop and loans will become cheaper and easier to pay off.

Talk to an expert

With lower interest rates on the horizon – now could be a great time to assess what finance options are available to you and how you can plan to get ahead.

To find out more or discuss your options, contact your Mike Pero Mortgage Adviser today.