What are negative interest rates?
The policy sounds paradoxical but follows a specific economic logic: when deflation threatens and conventional rate cuts have already pushed rates to zero, a central bank can try to stimulate spending and lending by effectively penalising hoarding. The relationship between interest rates and market prices is relevant across bonds, forex markets and equity indices, making NIRP one of the most widely watched central bank policy debates among traders.
How do negative interest rates work?
The mechanism operates at the commercial bank level first. Under NIRP, commercial banks must pay a fee to deposit excess reserves with the central bank. A bank holding 100 million in reserves at a -0.5% rate would effectively pay 500,000 per year to keep that money at the central bank. The theory: to avoid this cost, banks increase lending or buy higher-yielding assets, stimulating economic activity.
In practice, banks rarely pass the full cost to ordinary retail depositors, partly for competitive reasons and partly due to regulatory constraints. In Switzerland, some banks did introduce negative interest rates on large retail deposits, particularly for high-net-worth clients. Most retail savers in eurozone countries saw rates fall to near zero on savings accounts but not below zero. Businesses and institutional depositors were more directly affected.
Countries that have adopted negative interest rates
Country / Bank | Rate adopted | Peak negative rate | When ended | Key rationale |
European Central Bank | June 2014 | -0.5% (deposit facility, 2019) | July 2022 (raised to 0%) | Prevent eurozone deflation; boost lending after sovereign debt crisis |
Switzerland (SNB) | January 2015 | -0.75% | September 2022 |
What do negative interest rates mean for markets?
Bond markets
The most direct effect of NIRP is on bond yields. When a central bank rate goes negative, it pushes down yields across the curve: if you can earn 0% depositing at the central bank but -0.3% on a short-dated government bond, investors accept a small negative yield because government bonds offer safety and liquidity. At the peak of NIRP in 2019-2020, over $17 trillion of global government bonds traded at negative yields. Holders of existing bonds saw their prices rise significantly as yields fell, producing capital gains for those already holding. The reverse was equally powerful: as rates normalised from 2022, bond holders experienced significant losses as yields rose sharply.
Currency markets
NIRP is typically bearish for the currency of the country implementing it. The rationale: lower (and negative) rates make it less attractive to hold deposits in that currency, reducing demand. Japan specifically used NIRP partly to weaken the yen and support its export-heavy economy. Switzerland adopted NIRP partly to prevent the franc from appreciating excessively after investors sought safe havens. The forex market prices these divergences in real time: yield differentials between central banks are a primary driver of exchange rate movements.
Equity markets
Could the UK see negative interest rates?
The Bank of England consulted with banks in 2020-2021 about operational readiness for negative rates, without implementing them. The Bank Rate reached a record low of 0.1% in March 2020 but never went negative. By August 2023 it had risen to 5.25%, a 16-year high, driven by post-pandemic inflation. A series of cuts through 2025 brought it to 3.75% by year end.
The probability of UK negative rates appears very low in 2026. With the Bank Rate at 3.75%, there is substantial room to cut without approaching zero, and the UK's inflation experience since 2022 has made the case for ultra-loose monetary policy harder to make. However, a severe recession or a deflationary shock could resurrect the debate, and traders monitoring UK gilts and GBP/USD should keep the theoretical possibility in their risk framework.
How to trade around central bank rate policy
Bond prices: when rates fall (or go further negative), existing bond prices rise. Traders can take long positions on government bond futures or bond ETFs to benefit from rate cut expectations.
Currency pairs: NIRP is typically bearish for the implementing currency. A central bank cutting rates toward zero while peers hold steady creates carry trade opportunities: selling the low-rate currency against higher-rate alternatives.
Equity indices: NIRP environments generally support equity index performance by reducing the attractiveness of cash and bonds relative to equities. Rate normalisation has the opposite effect.
Gold and commodities: gold typically benefits from NIRP because the opportunity cost of holding a non-yielding asset falls when deposit rates are negative. When rates rise away from NIRP, gold faces headwinds. Access gold trading through our platform for exposure to this dynamic.
Negative interest rates FAQs
What are negative interest rates?
Negative interest rates mean a central bank sets its policy rate below zero, charging commercial banks to hold excess reserves rather than paying them interest. This is intended to incentivise lending and spending over hoarding cash. No major central bank currently operates at negative rates.
Which countries have had negative interest rates?
The ECB (2014-2022), Switzerland (2015-2022), Sweden (2015-2020), Denmark (2012-2022) and Japan (2016-2024) all implemented negative interest rate policies. The Swiss National Bank cut its rate to 0% in June 2025, the lowest among major central banks. Source: Raisin UK, TradingKey (2026).
Has the UK ever had negative interest rates?
No. The Bank of England's rate reached a record low of 0.1% in March 2020 but was never taken negative. By August 2023 it had risen to 5.25% in response to inflation, before a series of cuts brought it to 3.75% by end 2025. The BoE consulted on negative rate readiness in 2020-2021 but did not implement them.
What do negative interest rates mean for savers?
NIRP reduces returns on savings accounts, potentially to near zero. In some cases (notably Switzerland for large institutional deposits), banks have passed the negative rate to depositors directly, meaning savers pay to hold cash at the bank. NIRP is designed to encourage spending and investment rather than saving.
