Negative Savings Rates

Saving money does not pay in Europe. The European Central Bank (ECB) recently lowered borrowing and savings rates. In fact, the ECB lowered the rate paid on regional bank deposits to a negative .1 percent! By lowering interest rates, the ECB is hoping to stimulate spending and inflation, which is about .5 percent in euroland. So, how do you calculate the real interest rate with a negative nominal return? In this case, the real rate is approximately negative .6 percent.