Lenders are urging the Bank of England to tread carefully over plans to push interest rates to below zero for the first time in history.

HSBC and Santander are amongst those that have been asked to submit details over how they would react to minus rates - which would mean charging customers to hold their savings.

Speaking to the Commons Treasury Select Committee, HSBC said the Bank needed to "carefully consider" whether negative rates would actually revive the economy.

Taking rates negative would effectively mean customers would have to pay to keep their money in a bank.

This means that instead off earning interest, customers would have to pay a fee - most likely a monthly charge - which the Bank of England hopes would encourage people to spend.

Taking rates negative would effectively mean customers would have to pay to keep their money in a bank (
Image:
Bloomberg via Getty Images)

This already exists in parts of Europe, however HSBC said in many countries, it hasn't had the desired effect.

Amanda Murphy, head of commercial banking at HSBC UK, told the Commons Treasury Select Committee that the Bank of England "does have to carefully consider whether negative interest rates have the desired outcomes.

"Where we see places where they have already been introduced – Europe, Japan, Switzerland – we haven't seen inflation rise and the growth hasn't come back as strongly as one might have hoped," said.

Susan Allen, chief executive of retail and business banking at Santander UK, said: "We're ready in many parts of the bank, but there are some legacy systems that were never built for negative interest rates."

It's supposed to encourage people to spend money (
Image:
PA)

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Adapting these systems could take 12 to 18 months, the Spanish bank said. 

The Bank of England is currently consulting with lenders to see whether they would be able to cope with negative rates.

Deputy governor Sam Woods said banks and building societies in the UK should be ready for such a move.

"As part of this work, we are requesting specific information about your firm's current readiness to deal with a zero Bank Rate, a negative Bank Rate, or a tiered system of reserves remuneration - and the steps that you would need to take to prepare for the implementation of these," he said.

Some banks have also said they may introduce mandatory current account fees to help make up the shortfall.

What zero rates would mean for you

Interest rates are already rock bottom (
Image:
Getty)

In theory, 0% interest means you would earn nothing on your savings while minus rates could actually cost you.

"The prospect of negative interest rates may come as another blow to savers who might think that interest rates couldn't possibly go any lower," explains Eleanor Williams at Moneyfacts.

"Variable rate savings accounts could face further rate cuts should base rate move any lower, and if we move into the territory of negative interest rates, there is the possibility of seeing holding accounts that charge in the future."

While competition in the market may make this unlikely, Williams warns some savings accounts could go down this route - a little like how some current accounts charge a fee.

"If service or holding charges were to be brought in, then these would need to be factored into savers calculations carefully, and ideally any charges should be monitored by an independent body," she says.

"Those savers with larger deposits might see a charge to hold such funds with an institution, so spreading the wealth may well become common practice should this happen. Those who secure a fixed rate account now would be protected for its term should rates drop further in the future, however, savers need to be comfortable with locking their savings pot away for the term they choose.

"The savings sector remains fluid, and therefore it is perhaps more vital than ever before for savers to shop around for a competitive deal and keep a close eye on the ever-changing market."

What should I do with my money instead?

If you're worried about losing even more on your savings, these are your options right now:

  • Lock your money away in a fixed account: Fixed savers offer a set rate for a specific period - often up to five years - so if you're worried about rates crumbling further, you can put your money in one of these accounts (providing you won't need access to it over the set period). Right now, Aldermore Bank is paying 1.15% to those who lock away £1,000 or more for two years.

  • I may need emergency access to my cash: Easy access accounts such as Coventry Building Society's 0.96% saver pay decent amounts but the rates are variable - meaning they will fluctuate with the base rate. Watch out for the term 'fixed' as these offer a little more peace of mind.

  • Save in a specialist account: Take advantage of accounts designed to help you meet your savings goals. For example, the Lifetime isa pays 25% on up to £4,000 a year and can help you buy a house or save for your retirement. Likewise, the government's Help to Save account pays a 50% bonus and is available to millions of those on low incomes. You can save up to £50 in it a month.

  • Clear your debt: If you've have outstanding loans and are currently paying more on them in interest than you're earning on your savings, consider using the cash to clear those outstanding balances. With uncertain times ahead, being debt-free could make a huge difference. If you haven't got any loans but do have a mortgage, consider overpayments instead (but be aware of charges for this).