COPENHAGEN (Reuters) - Wealthy Danes might soon decide to put their cash somewhere besides their bank, it they're not willing to pay the bank to hold their money for them.
Denmark's economy is healthy and employment at record highs. As prosperity spreads, private savings are growing, reaching a record 936 billion Danish crowns, or 208,000 crowns ($30,676) per adult, in October, according to the central bank.
Interest rates should be rising, in that situation. But in September the central bank cut its key deposit rate to minus 0.75%, a record low among developed economies.
This year, Danish banks were among the first to pass those costs on to private clients. A Dane who deposits at least 750,000 crowns at the banks that have announced negative rates will pay the banks 0.75% to hold them for him.
Rates are in negative territory because Denmark usually sets monetary policy in lock-step with the European Central Bank, to keep the crown pegged to the euro. The ECB began slashing rates in 2012, as it grappled with the euro zone's debt crisis, and in 2014 cut them below zero.
Denmark beat them to it. It set negative rates in 2012, as it tried to recover from the 2008 financial crisis and the subsequent debt crisis, and it's kept cutting them as it matched the ECB's policy.
The central bank said on Wednesday that deposits of around 790 billion Danish crowns would be affected, if all banks introduced negative deposit rates regardless of size. Around 178,000 Danes had more than 750,000 crowns in the bank, it said.
Banks aren't required to impose the charges, and it's likely some won't. In any case, they probably won't make much money on the deal, the central bank said. Savers will simply spread deposits across several banks, to avoid the 0.75% charge, or start paying off debt, or just take out cash.
"What we have seen from corporates is that negative rates had few obvious consequences. But whether households will react the same way is an open question," the central bank's head of financial institutions, Peter Storgaard, said at a press conference.
Last month, a survey of wealthy individuals indicated that only 8% of respondents would accept paying interest rates on their private deposits. The remaining 92% want to pull their money out of deposits and put it elsewhere.
Of those, 7% percent said they would take out cash and keep it at home or in a deposit box at the bank.
"Danes seem to like the security of having large amounts of money in the bank," said Nykredit analyst Mira Lie Nielsen. "The growing focus on the consequences of excess consumption for the climate and the environment may have begun to make Danes more reluctant to spend."
Jyske Bank, Denmark's second-largest bank, was the first Danish bank to announce negative rates on wealthy client deposits, in August, with roughly 11,000 clients due to be affected as of Dec 1.
It was also the first to offer a negative rate on a home loan, in effect paying customers 0.5% to borrow money for 10 years.
The move was followed by a wave of announcements from other banks, including Nordea (HE:NDAFI) last week, to begin charging wealthy individuals for their deposits of more than 750,000 crowns.
But for now, Danish homeowners are mostly taking advantage of ultra-low interest rates to re-finance mortgages and other loans. While European bank earnings have suffered from negative rates, the mortgage activity has partly shielded Danish banks from the impact of negative rates.
Still, core earnings among large Danish banks have fallen steadily since 2015, the central bank said.