How investors can beat negative interest rates
In the beginning of March the FOMC unexpectedly cut rates by 1.5 percentage points bringing U.S. interest rates to a range of 0.25 an 0, causing investors to fear that this could usher in a new period of negative interests rates.
Compounding these fears was the rapid spread of COVID-19 (coronavirus) causing global disruption of supply chains, manufacturing and travel which in turn caused a significant drop in the price of Oil and most stock markets. The US treasury yield curve inverted during the end of 2019, which is also considered to be a forebearer of an economic crisis.
March also brought the crash of Oil, pushing prices to levels that hadn’t been seen since 2016 and threating to devalue the energy commodity to never seen before lows.
So, what do investors do when interest rates inevitably move into negative figures?
There are alternative methods to earn interest on investments and deposits, even when banks, other financial institutions and investment vehicles move to negative rates. Most investors would likely go to securities, but what if those are dropping too?
Brokers may seem like an unlikely oasis in the desert of negative rates, but they carry many of the same protections banks have including ASIC regulation, client funds are held in separate Tier 1 accounts. They even offer some protections banks don’t like negative balance protection. I’m sure the first question you’ll want answered is: why do brokers offer interest rates when banks are charging people to hold their money?
The main reason is that a broker do not offer loans or get loans with interest rates set by Central Banks. This is why easyMarkets can offer its clients competitive interest rates, without compromising security of the client’s account and funds. The only condition is that the client or investor trade 25 standard lots per month, a very reasonable volume considering the 2% interest paid on the maximum deposit of $500,000 AUD equates to $10,000 AUD. This is not even calculating the potential marginal gains as a result of trading activity from lower risk trading/investment vehicles.
To make this even more convenient, easyMarkets offers over 200 instruments to trade, including CFDs on ASX shares and the ASX Index. The list of available instruments including currencies, commodities; both energy and agricultural, shares (AU, US, EU, HK and JP listings), cryptocurrencies, indices and metals; both precious and industrial. This allows the trader or investor to create a portfolio catered to their investment goals.