SNB Sees 18 Billion Franc Deposit Surge After Zero Rate Policy

The Swiss National Bank (SNB) has seen a significant increase in sight deposits following its decision to reduce borrowing costs to zero on June 19. This policy shift has led to a substantial inflow of funds from foreign banks seeking to avoid negative interest rate charges. Within just one week, total deposits surged by 18 billion Swiss francs ($23 billion), with foreign institutions contributing 22 billion francs, while domestic banks withdrew 4 billion francs. This surge in deposits is primarily attributed to the actions of foreign banks responding to the changes in market rates.

In response to the SNB’s zero rate policy, the Swiss Average Rate Overnight (Saron) fell below zero, reaching -0.04%. This drop prompted banks to seek ways to avoid paying negative interest on their reserves. The SNB’s zero rate policy provided a safer haven for funds, particularly for foreign banks that typically face higher risks from negative money market rates. By transferring their reserves to the SNB, these banks found a low-cost, low-risk method to manage their cash holdings.

The SNB’s deposit thresholds play a crucial role in helping banks limit their exposure to negative interest rates. Banks without minimum reserve requirements can deposit up to 10 million francs in sight without incurring interest charges. This threshold offers some protection against negative interest for smaller amounts and explains why foreign banks, who often lack domestic reserve obligations, find it attractive. These limits help the SNB manage inflows while discouraging very large cash holdings, contributing to a balanced financial system and providing flexibility for institutions managing liquidity.

Domestic banks in Switzerland operate under a different system called “tiered remuneration.” This system allows them to keep sight deposits up to 18 times their minimum reserve requirement without any charge. If their deposits exceed this limit, the SNB imposes a -0.25% charge, which is 25 basis points below the official policy rate. This model is designed to discourage banks from storing excess cash and encourages them to lend to other institutions or invest elsewhere, thereby maintaining healthy liquidity across the Swiss banking sector.

The SNB introduced the tiered system when it lifted interest rates above zero in 2022. This structure typically keeps the Saron slightly lower than the official policy rate, encouraging financial movement rather than passive cash holdings. The setup makes it more expensive for banks to keep large balances at the SNB, prompting them to redistribute funds. Even after returning to zero rates, the SNB continues to use this structure to manage liquidity effectively.

Between 2015 and 2022, the SNB earned nearly 12 billion francs through negative interest charges on deposits. When rates turned positive again, it returned 14.5 billion francs to banks by March 2025. With the current structure and free thresholds in place, the SNB is unlikely to collect much new income, as only a small portion of total sight deposits are expected to exceed the penalty levels. Revenue from this area will likely remain low under current conditions.