Why are Danish bank customers facing (increasing) negative interest?

Danish bank Nordea is to increase negative interest, following a similar move by the country's central bank earlier this month.
Danish bank Nordea is to increase negative interest, following a similar move by the country's central bank earlier this month. File photo: Liselotte Sabroe/Ritzau Scanpix
Bank Nordea is to increase the amount of negative interest applied to private customers’ accounts with deposits of over 100,000 kroner.

The bank on Monday confirmed on its website an adjustment of its interest to minus 0.7 percent, an increased negative interest compared to the prior minus 0.6 percent.

As such, savings of 250,000 kroner deposited with the bank will now cost the customer 1,050 kroner annually. The previous interest rate would have resulted in an expense of 900 kroner.

Nordea said the decision followed a recent downward adjustment of Denmark’s interest rates by the central bank, Nationalbanken.

National interest rates have a key influence on the interest charged by banks to their customers.

READ ALSO: Denmark’s central bank decreases interest rates in response to strong currency

“It can initially seem illogical to have to pay to keep money in a bank account,” Nordea wrote.

“But it is a consequence of the historically low interest rates that have been prominent in the Danish economy for many years,” the bank continued.

Nationalbanken slightly lowered interest rates at the beginning of the month in response to the krone’s currently strong position against the euro. The mandate of the central bank is to maintain a consistent exchange rate between the krone and the euro.

Interest rates for current accounts, savings and loans were decreased by Nationalbanken by 0.1 percent, to 0.6 percent, 0.6 percent and 0.45 percent respectively.

At the time, the interest rate change was not expected to impact interest rates offered by banks.

The change in the currency price of a euro of than one øre (a hundredth of a krone) will likely only impact large scale speculators.

Because it is tasked with maintaining euro parity, Nationalbanken sets interest close to the interest set by the European Central Bank (ECB), the central bank for countries in the euro zone.

If Nationalbanken interest was higher than the ECB’s it would become attractive for speculators to buy Danish kroner instead of euros.

That could cause the exchange rate for the krone to increase, knocking it out of its bind with the euro.

ECB interest has been zero or less than zero since 2012. In 2019, Danish bank Jyske Bank became the first in the country to charge negative interest to customers. Other banks later followed suit.

However, most banks still allow customers to have around 100,000-250,000 kroner in their accounts before negative interest applies.


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