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Negative interest rates in Switzerland

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How can I avoid them?

The Essentials in Brief

Negative interest rates are a type of penalty interest on bank account balances.
During the last negative interest phase (2015 to 2022), the negative interest rate was -0.75% in most cases (February 2022).
Negative interest rates can be partially avoided by distributing funds across several banks.
Investing account balances is the best long-term recipe against negative interest rates.

Avoiding negative interest rates in Switzerland – not that easy. Negative interest rates are moving within reach again with the recent interest rate cuts by the Swiss National Bank (SNB). This article helps you in your search for alternatives

As is well known, inflation causes the purchasing power of your savings to dwindle (we explain why that is here).

What are negative interest rates?

Negative interest rates are a type of penalty interest. This is calculated as a percentage of the account balance. They are applied to the portion of the account balance that exceeds the respective allowance. As of early 2022, the negative interest rate in Switzerland was mostly -0.75%.

Why are there negative interest rates in Switzerland?

As a direct consequence of the 2008 financial crisis, all major central banks, including the Swiss National Bank (SNB), lowered interest rates. The purpose of these rate cuts was to provide the economy with cheap or interest-free loans. This was intended to encourage companies to invest and private individuals to consume. In some cases, the cuts went so far that interest rates slipped into negative territory.

Negative interest rates in Switzerland are nothing new. Between January 2015 and autumn 2022, the SNB charged a negative interest rate equivalent to the respective SNB policy rate (most recently -0.75% in autumn 2022). It is levied on sight deposit account balances held by Swiss banks at the SNB. Also affected are, for example, securities dealers, insurance companies, and central banks. The negative interest rate is a monetary policy instrument used by the SNB to implement its monetary policy strategy.

The negative interest rate is a monetary policy instrument used by the SNB to implement its monetary policy strategy.

Who charges negative interest rates?

The SNB charges negative interest rates to commercial banks, and these banks, in turn, charge negative interest rates to their customers. In the meantime, most banks charge their customers negative interest rates. Not all banks offer the desired transparency in this regard, as some institutions refrain from publishing their allowance limits.

By using a negative savings account interest rate, banks aim to reduce costs within their account product range on the one hand. On the other hand, they want to encourage customers to invest in in-house funds rather than holding cash. Banks earn nothing at all from account balances. Investment funds appear much more lucrative—at least from the bank’s perspective. For customers, it is important to keep a very close eye on the costs of such funds.

Which banks charge negative interest rates in Switzerland?

Or to put it another way: Which bank has no negative interest rate? If the SNB lowers the key interest rate below the 0% threshold and thus reintroduces negative interest rates, the banks will react immediately and pass these negative interest rates on their private and savings accounts to their customers. In this regard, savings banks hardly differ from cantonal or regional banks, the major bank UBS, or even PostFinance and private banks.

Who is affected by negative interest rates in Switzerland?

Bank customers with high account balances are affected by negative interest rates in Switzerland. In the meantime, banks hardly differentiate by customer segment anymore. Thus, in addition to private and business customers, foundations and organizations are also affected. A negative interest rate is now applied to practically the entire range of account products offered by banks in Switzerland.

How is the negative interest rate calculated?

Banks in Switzerland aggregate the balances of all accounts held in the same name. The allowance is deducted from the calculated total, and e.g. 0.75% is then applied. If a customer has three accounts with CHF 48,000, CHF 85,000, and CHF 137,000, each individual account remains below the assumed allowance limit of CHF 150,000 for this case. However, when aggregated, the total amount of 270,000 clearly exceeds this limit. The negative interest is then calculated on the CHF 120,000 that exceeds the allowance. A negative interest rate of 0.75% applied to CHF 120,000 results in an annual penalty interest of CHF 900.

When do you have to pay negative interest?

The amount at which negative interest rates apply depends on the respective banking institution. In 2021, some banks even moved toward charging a negative interest rate starting from the very first franc of account balance. Much more common, however, are allowances. As long as these limits are not exceeded, no penalty interest is paid (yet). In other words: banks in Switzerland grant their customers an allowance on their accounts. Only when this limit is exceeded does a negative interest rate have to be paid. This allowance limit differs from bank to bank. Furthermore, it can vary depending on the customer segment. Here is an example of the total funds affected by negative interest: with an account balance of 500,000 francs and an allowance limit of 100,000, the negative interest would amount to a whopping 3,000 francs—annually, mind you.

Account balance	CHF 500,000
Allowance	CHF 100,000
Amount subject to negative interest	CHF 400,000
Negative interest rate	0.75%
Negative interest in francs	CHF 3’000 (400,000 x 0.75%)

Legal and Tax Aspects of Negative Interest Rates

In applying negative interest rates, the SNB relies on its General Terms and Conditions (GTC). Similarly, banks refer to their respective GTCs when passing on negative interest rates—also known as custody fees or penalty interest. Consequently, there is no legal recourse for customers to challenge negative interest rates on their private accounts, savings accounts, or investment savings accounts.

Distinction between Negative Interest and Account Management Fees

Banks do not yet charge penalty interest on relatively low account balances. However, account management fees are very often applied. For example, if you pay 15 francs per month and “only” have 9,000 francs in your account, the account management fee corresponds to a penalty interest rate of a whopping 2%.

Monthly account management fee: 15 francs x 12 months = 180 francs annually

180
—–—- = 2%
9,000

How can you avoid negative interest rates?

How can I avoid negative interest rates? We explain the various options.

Investing in low-cost funds as an alternative to negative interest rates

The most sensible and profitable way to avoid negative interest rates is the long-term investment of saved funds. Almost everyone saves for a more or less clearly defined goal: a car, retirement, their own home, children’s education, or a trip around the world, to name just a few. Often, however, the saved assets—or at least parts of them—ultimately sit on the savings account much longer than originally intended. If you plan, for example, to “put aside” CHF 5,000 each year for the next 10 years (CHF 417 per month), the first CHF 5,000 will have an investment duration of 10 years, the second nine years, and so on. Therefore, the investment horizon can be described as medium to long-term. And that is the crucial point: for an investment horizon of several years, the perfect alternative to an account balance—and thus for avoiding negative interest rates—is investing in low-cost funds. But beware—only a cheap and simple solution is a real alternative. The findependent investment app helps with low-cost and successful investing, even for those who are not finance professionals themselves. Here we explain how and why long-term investing works.

By the way, you can calculate this for yourself right now using our return calculator.

Calculation Example for Avoiding Negative Interest Rates

Let’s assume that CHF 50,000 of your assets are subject to the bank’s negative interest of 0.75% (also known as penalty interest). Furthermore, we assume that this CHF 50,000 is not earmarked for any major investment over the next 10 years.

In the following table, we compare the costs of each variant:

	Account with Negative Interest	findependent Investment App
Annual Negative Interest Costs (0.75%)	CHF -375	CHF 0
Annual fee for the findependent Investment App	CHF 0	0.38% CHF 190
Total Costs over 10 Years	CHF 3,750	CHF 1,900

Total cost savings with findependent: CHF 1,850. This is in comparison to a private or savings account.

However, the return advantage is significantly more impactful. This is because the invested capital generates attractive returns, whereas money in a traditional account is effectively shrinking due to negative interest and inflation.

	Account with negative interest	findependent Investment App
Starting balance	50,000	50,000
Annual return	-0.75%	5% (netto)
Annual fund management fees	CHF 0	0.38%
Balance after 10 years	46,374	81,445

Note: The return on the investment solution in this example is 5% net. This corresponds approximately to the long-term return of the findependent “Balanced” investment solution. These figures are based on historical values; however, this represents no guarantee for future market developments.

Those who have the necessary patience do not take on excessive risk. Furthermore, with a long-term horizon, the probability of success is very high. We explain more about the risks of investing, why a long-term investment horizon significantly reduces the risk of loss, and why investing is the “new saving” here.

If you are interested in how inflation—the devaluation of money—affects your savings, we recommend our dedicated blog post on the subject.

Home Ownership as a Way to Avoid Negative Interest Rates

Buying a home is another way to avoid negative interest rates. To embark on the path to home ownership, one must not only provide the necessary equity—at least a solid 20% of the purchase price—but also ensure affordability. The total costs of the property should not exceed one-third of your income.

However, the most important aspect of this alternative is clearly the long-term nature of the investment. Usually, you buy a home with the intention of living in it for many decades. While buying a home can be an option to avoid negative interest rates, you are essentially trading the flexibility of liquid funds in an account for an extremely long-term and illiquid investment. You are effectively “immobilizing” your assets.

Conclusion

To avoid negative interest rates on your accounts, you should consider whether a portion of your account balances is intended for the longer term. You should invest this portion—ideally using a low-cost and simple investment app. This is where findependent helps you.