RBS Customers May Face Negative Interest Rates

The RBS banking group has warned 1.3 million customers they could be charged negative interest rates if the Bank of England cuts base rates below zero.

The group, which includes NatWest, wrote to its business and commercial account holders about the potential changes, which mean they could lose money even when they are in credit.

The letter said: "Global interest rates remain at very low levels and in some markets are currently negative.

"Dependent on future market conditions, this could result in us charging on credit balances."

The Bank of England's base rate currently stands at the historically low rate of 0.5%, where it has been for more than seven years - and some economists believe it should be cut further to stimulate the economy.

RBS (LSE: RBS.L - news) and NatWest would be the first banks in UK history to charge negative interest rates.

However, a spokeswoman for the group stressed there are no plans to inflict any of these changes on its personal banking customers.

"We will consider any necessary action in the event of the Bank of England base rate falling below zero, but will do our utmost to protect our customers from any impacts," she added.

Any cut in the base rate would be better news for borrowers, as those on so-called "tracker" mortgages would see the cost of their monthly bills fall.

But savers could see already disappointing returns on their funds plummet further in the event of a reduction to 0.25% as expected.

Earlier this month, Bank of England governor Mark Carney said he was reluctant to reduce rates below 0.25%, warning: "If interest rates are too low or negative, the hit to bank profitability could perversely reduce credit availability or even increase its overall price."

The Federation of Small Businesses urged its members to consider switching business current accounts to take advantage of the best possible rates.

Mike Cherry, its national chairman, said: "Today's warning from Natwest and RBS will be deeply concerning to small firms.

"FSB's latest research shows small business confidence is already at a four year low. Firms are less optimistic, cutting headcount and curbing investment intentions.

"When the Monetary Policy Committee meets next week to decide on interest rates, we would call on them to do everything possible to consider the implications of changing interest rates for smaller firms and the self-employed looking to maintain or grow their business (Other OTC: UBGXF - news) ."