A liquidity trap is a contradictory economic situation in which interest rates are very low while savings rates are high. In this video, you'll learn a simple way to understand this concept through an easy and brief explanation. During a liquidity trap, consumers choose to avoid bonds and keep their funds in cash savings. In a liquidity trap, consumers choose to hoard cash instead of making investments because of a negative economic view. We also cover the pros and cons of this situation, as well as how to get out of it.