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

• Published in: Journal of behavioral and experimental economics 2021-08, Vol.93, p.101714, Article 101714
• Main Authors: Corneille, O., D’Hondt, C., De Winne, R., Efendic, E., Todorovic, A.
• Format: Article
• Language: English
• Subjects: Interest rates; Negative interest rates; Savings accounts; Tolerance
• ISSN: 2214-8043; 2214-8051
• DOI: 10.1016/j.socec.2021.101714

•People are willing to tolerate negative interest rates (NIRs) on their savings rather than spend it.•Lower amounts and shorter time horizons increase tolerance of NIRs.•Higher amounts and larger time horizons decrease tolerance of NIRs.•Regular savers are more likely to tolerate NIRs. 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 future-oriented 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).