NatWest, RBS warn business customers of potential negative interest rates
High-street lenders NatWest and Royal Bank of Scotland are warning business customers that they may impose negative interest rates on deposits if Bank of England cuts its key rate in August as expected.
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RBS, which is NatWest's parent, said the letter was sent to the banks' combined 1.3m business customers, 850,000 of them belonging to the latter. Personal accounts would not be affected.
"We will consider any necessary action in the event of the Bank of England base rate falling below zero, but will do our utmost to protect our customers from any impacts," the BBC reported an RBS spokesperson as stating.
The change could mean an account holding £1000 could drop in value to £999, or less the following year.
"Global interest rates remain at very low levels and in some markets are currently negative. Dependent on future market conditions, this could result in us charging interest on credit balances," said NatWest in a letter to its customers.
After last month's shock vote by the UK to quit the European Union, BoE is widely expected to cut its benchmark interest rate to 0.25% on 4 August in a bid to revive the UK's flagging economy and stave-off the spectre of recession.
The ultra-low interest rates would put huge pressures on the bank's finances.
However, BoE governor Mark Carney appeared to oppose negative rates. When probed by MPs in April, he said: "We think we could move base rate closer to zero but have not said we have an appetite for negative interest rates."
European Central Bank was the first major central bank to impose negative rates in 2014 with the aim of encouraging banks to lend to businesses rather than hold on to money.
Federation of Small Businesses national chairman Mike Cherry was concerned by the warning, noting that negative interest rates could worsen small business confidence, which was already plumbing a four-year low.
"We call on them (BoE) to do everything possible to consider the implications of changing interest rates for smaller firms and the self-employed looking to maintain or grow their business," Cherry said.
Other high street banks have not yet unveiled any plans to impose negative interest rates for now, the Guardian has reported.