A negative interest rate policy is an unconventional monetary policy tool in which nominal target interest rates are set below zero.An NIRP means depositors are actually charged to put their money into a savings account at their local bank, as opposed to receiving interest on their deposits. Why would a central bank implement an NIRP? During deflationary periods, people and businesses hoard their cash instead of spending and investing it. Aggregate demand collapses, which leads to falling prices, slowing production, and more unemployment. When interest rates fall below zero, the costs for companies and individuals to borrow falls, which in turn increases demand for loans, investments and consumer spending. Banks lend money more freely, and borrowers are more inclined to spend or invest their cash, rather than pay to leave it in the bank. Some retail banks prefer to pay the costs stemming from negative interest rates themselves instead of charging them to small depositors. They fear those depositors will move their money into cash. To prevent this, banks sometimes absorb the loss, even though it means smaller profits.