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What leads people to tolerate negative interest rates on their savings?

Author

Listed:
  • Corneille, O.

    (Université catholique de Louvain)

  • D’Hondt, Catherine

    (Université catholique de Louvain, LIDAM/LFIN, Belgium)

  • De Winne, Rudy

    (Université catholique de Louvain, LIDAM/LFIN, Belgium)

  • Efendic, E.
  • Todorovic, Aleksandar

    (Université catholique de Louvain, LIDAM/LFIN, Belgium)

Abstract
Using an online experiment, we investigate intertemporal preferences to infer people’s willingness to accept negative interest rates (NIRs) on their savings. We find some tolerance of NIRs, i.e., of people being willing to hold money in the bank rather than spend it, thereby accepting less savings at some future time. This tolerance strongly depends on the amount of savings, time horizon, actual savings behavior, and anchoring. Specifically, the higher the amount, the lower is the tolerance of NIRs, consistent with a reverse magnitude effect. Moreover, as the time horizon increases, the tolerance of NIRs decreases. Regular savers are more likely to tolerate NIRs than nonregular savers, which is consistent with status quo bias, higher familiarity with savings deposits, or a futureoriented mindset. We also find a higher tolerance of NIRs on savings when participants are anchored towards NIRs, i.e., when participants are first presented with NIRs and then with positive interest rates (PIRs).

Suggested Citation

  • Corneille, O. & D’Hondt, Catherine & De Winne, Rudy & Efendic, E. & Todorovic, Aleksandar, 2021. "What leads people to tolerate negative interest rates on their savings?," LIDAM Reprints LFIN 2021011, Université catholique de Louvain, Louvain Finance (LFIN).
    • Handle: RePEc:ajf:louvlr:2021011
    DOI: https://doi.org/10.1016/j.socec.2021.101714
    Note: In: Journal of Behavioral and Experimental Economics, 2021, vol. 93, 101714
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    Cited by:

    1. policy, Work stream on macroprudential & Albertazzi, Ugo & Martin, Alberto & Assouan, Emmanuelle & Tristani, Oreste & Galati, Gabriele & Vlassopoulos, Thomas, 2021. "The role of financial stability considerations in monetary policy and the interaction with macroprudential policy in the euro area," Occasional Paper Series 272, European Central Bank.
    2. Boudt, Kris & Khokhar, Mulazim-Ali, 2021. "Performance-sharing optimization by risk-constrained equity investors," Finance Research Letters, Elsevier, vol. 38(C).
    3. policy, Work stream on macroprudential & Policy, Monetary & Stability, Financial & Albertazzi, Ugo & Martin, Alberto & Assouan, Emmanuelle & Tristani, Oreste & Galati, Gabriele & Vlassopoulos, Thomas , 2023. "The role of financial stability considerations in monetary policy and the interaction with macroprudential policy in the euro area," Occasional Paper Series 272, European Central Bank.
    4. Jos'e Pedro Gaiv~ao & Benito Pires, 2022. "Chaotic time series in financial processes consisting of savings with piecewise constant monthly contributions," Papers 2206.11933, arXiv.org, revised Feb 2023.
    5. Luis Brandao-Marques & Marco Casiraghi & Gaston Gelos & Gunes Kamber & Roland Meeks, 2021. "Negative Interest Rate Policies: Taking Stock of the Experience So Far," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 22(06), pages 27-32, November.

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    More about this item

    Keywords

    Negative interest rates ; Savings accounts;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy

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