Do you add fees for negative interest rates?
Custody Fee/Negative Interest
As of 1st October 2022, the applicable total negative interest rate is 0.00% (0.75% ECB rate + -0.25% markup = 0.50%, however, as we are a Payment Institution, not a Bank, we are not permitted to pay interest on funds held on account with us, so the EUR custody fee is adjusted to 0.00%) per annum on the average daily balance in a calendar month on Account held in EUR. Freemarket reserves the right to charge custody/negative interest fees with respect to any other currencies which attract negative interest rate fees in the future.
Why do we charge custody/negative interest fee?
This fee is charged to recover our costs associated with holding funds in a particular currency. It includes negative interest reference rates, which are set by central banks, such as the ECB for funds held in EUR. In addition to the negative interest rates, our mark-up over the reference rate includes certain additional cost components we have to consider, including any other costs such as ECB deposit facility rates passed on to Freemarket by its banking partners.
Normally, banks do not pass their costs on to their customers as they can use the deposit base for lending activities, but due to regulatory restrictions all funds held for payment service providers like Freemarket must be 100% liquid, and so these additional costs are charged to clients like Freemarket.
Thus, as an example, the ECB base reference rate for EUR is currently +0.75% and mark-up is -0.25%, giving a total negative interest rate of +0.50% per annum for EUR balances held on account. However, as we are a Payment Institution, not a bank, we are not permitted to pay interest on funds held on account with us, so the EUR custody fee is adjusted to 0.00%.
Negative Interest Fee Illustration:
A transfer to your account of €100,000 was made on 1st April 2022 and you have given us instructions for an onward transfer of €50,000 on 16th April 2022. There have been no withdrawals from your Freemarket account since then. The remaining balance on your account on 30th April is €50,000. The average daily balance for the month is therefore €75,000 (€100,000 for 15 days and €50,000 for 15 days) The applicable total negative interest rate is 0.25% per annum based on the average daily balance in a calendar month on account held in EUR. Thus, you would be automatically charged €15.63 (€75,000 * 0.25% / 360 *30).
Effective Dates: the new rates as set out in the table below are effective as follows:
New Clients:
Corporate: 1st October 2022
Small Charity & Micro Enterprise: 1st October 2022
Existing Clients:
Corporate: 1st October 2022
Small Charity & Micro Enterprise: 1st October 2022
| CCY | Central Bank Deposit Rate* | Bank Mark-up | Total Interest Rate ** |
|---|---|---|---|
| EUR | +0.75 | -0.25 | 0.00 |
| JPY | -0.24 | -0.16 | -0.4 |
*As of the Effective Date and Subject to Change without notice.
**Total Interest Rate as of the Effective Date. The total interest rate is indicative only and subject to change without notice.
***Actual 360 is the method that calculates interest daily by counting the number of days in the calendar but uses a fixed 360 length.
****Adjusted to 0.00 as no custody fee is chargeable as total interest rate after applying Bank Mark-up is positive.