What are negative interest rates and have they worked?

The short answer

A negative interest rate is exactly what it sounds like: instead of paying you interest on your money, the bank charges you for holding it. When a central bank sets its policy rate below zero, it is charging commercial banks for parking reserves at the central bank, hoping to incentivize them to lend instead.

The Bank of Japan, ECB, Swiss National Bank, Riksbank, and Danish Nationalbank all introduced negative rates between 2012 and 2016, in environments where conventional monetary easing had reached its limits. Each pursued slightly different objectives, from countering deflation to limiting currency appreciation.

The honest empirical answer is that they “worked” in the narrow sense of pushing market rates negative as intended, but the broader macroeconomic results were modest and the side effects on bank profitability and savings behavior accumulated over time.

→ New to monetary policy? How effective is the zero lower bound in constraining policy?

What the data shows

Five major central banks operated below zero between 2014 and 2024, providing a decade of comparable empirical evidence.

The empirical record (BIS, ECB SDW, FRED, central bank archives, 2014-2024):

• The ECB cut its deposit facility rate to -0.10% in June 2014, eventually reaching -0.50% by September 2019, and exited only in July 2022
• The Swiss National Bank pushed its policy rate to -0.75% in January 2015, the deepest negative rate, exiting only in September 2022
• The Riksbank ran a negative repo rate from February 2015 (-0.10%) to December 2019, reaching -0.50% in 2016
• The Bank of Japan held its short-term rate at -0.10% from January 2016 until March 19, 2024 — the world’s last NIRP regime

The exception that nuances the verdict: studies (Eisenschmidt and Smets 2019, Brunnermeier and Koby 2018) found that NIRP successfully transmitted to wholesale markets but largely failed to push retail deposit rates negative, blunting the intended stimulus.

→ Dataset: Policy rate history dataset

Why it happens — the macro mechanism

NIRP works through three transmission channels, each with empirical limitations.

Money market channel. Central banks charge negative rates on excess reserves, which pushes interbank rates and short-term wholesale yields below zero. This component worked as designed: euro area money market rates, Swiss interbank rates, and yen LIBOR all turned negative within weeks of each respective NIRP announcement.

Bank lending channel — the reversal point. The textbook expectation is that lower rates incentivize banks to lend more rather than hold low-yielding reserves. In practice, contrary to this view, research finds that NIRP can compress bank net interest margins to the point of impairing lending capacity. Brunnermeier and Koby (2018) formalized this as the “reversal rate” — the level below which further easing becomes contractionary.

This is why the SNB and the BoJ introduced tiered exemptions, exempting a portion of bank reserves from the negative rate.

Currency channel. NIRP weakens the domestic currency by reducing the carry trade attractiveness of holding it. The SNB explicitly cited Swiss franc appreciation pressure when introducing -0.75% in 2015; the ECB’s NIRP coincided with euro depreciation that supported eurozone exporters.

Synthesis by regime: in the pre-2014 era, negative rates were considered impossible by most central bankers; during 2014-2022, NIRP became a standard tool in low-inflation regimes but produced disappointing macro results, with the IMF and BIS both later concluding that effects on bank lending and inflation expectations were modest; in the post-2022 high-inflation regime, every NIRP central bank has exited, with the BoJ closing the era on March 19, 2024.

Negative rates broke the spell of zero but did not break the bank lending channel — they merely revealed that the channel runs through bank profitability rather than through the policy rate alone.

→ Framework: Central banks, monetary policy and market transmission

What it means for different economic actors

Savers. NIRP rarely pushed retail deposit rates negative, but it eroded real returns on cash and short-duration bonds throughout 2014-2022 in the eurozone, Switzerland, Japan, and Sweden. The persistent negative real yield environment accelerated savings flows into equities, real estate, and longer-duration credit.

Investors. Negative sovereign yields became normal: at peak in mid-2020, more than $17 trillion of global government bonds traded at negative yields. Long-duration assets benefited from the search-for-yield, while bank stocks underperformed throughout the NIRP era due to margin compression.

Banks and pension funds. NIRP was particularly damaging to commercial banks (squeezed net interest margins) and pension funds (long-dated liabilities discounted at suppressed rates). Several central banks introduced reserve tiering specifically to limit banking sector damage.

A common error is to assume that NIRP only affected banks in the countries that deployed it. In practice, negative European yields drove global capital toward US fixed income, contributing to the secular flattening of US Treasury yields throughout 2014-2019.

Practical observation

Go deeper

Related questions

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Frequently asked questions

Why did banks not pass negative rates on to retail depositors?

Banks feared that charging depositors negative rates would trigger massive cash withdrawals or deposit flight to competitors. As a result, retail deposit rates throughout the NIRP era stayed at or just above zero, even when wholesale rates were deeply negative. This asymmetry — negative on the asset side (loans, securities) but stuck near zero on the liability side (deposits) — is what produced the bank net interest margin squeeze that the Brunnermeier-Koby reversal rate framework predicts.

What is the reversal rate and why does it matter for the future of NIRP?

The reversal rate is the policy rate level below which further cuts become contractionary because they impair bank lending capacity more than they stimulate borrowing demand. Brunnermeier and Koby (2018) formalized the concept after observing that ECB NIRP appeared to dampen rather than enhance lending. The policy implication is that NIRP has a hidden ceiling on its effectiveness, set by the resilience of the banking sector — meaning future deployments may face the same limits.

Why did the Bank of Japan keep NIRP for so long after others exited?

Japan’s exit was delayed because its inflation problem was the inverse of others’: decades of deflation had anchored expectations near zero, and the BoJ wanted credible evidence that rising wages would sustain inflation around 2% before exiting. The catalyst was the spring 2024 wage negotiations (Shunto), which produced wage increases of more than 5% — the highest in 33 years. The BoJ formally ended NIRP and YCC together on March 19, 2024.

Last updated — 19 May 2026