Swiss National Bank Sight Deposits Rise Amid Zero Rate Policy

Bloomberg reported on June 30 that the Swiss National Bank experienced a sharp rise in sight deposits. This came after reducing borrowing costs to zero on June 19. This change led foreign banks to move significant funds into the SNB to avoid negative interest rate charges. Total deposits rose by 18 billion Swiss francs ($23 billion) in just one week. Foreign institutions added 22 billion francs, while domestic banks pulled back 4 billion francs. As such, the deposit growth came almost entirely from banks outside Switzerland reacting to market rate changes.

Saron Falls Below Zero as Banks Seek to Avoid Negative Interest

After the SNB’s move, the Swiss Average Rate Overnight, or Saron, dropped below zero, reaching -0.04%. As a result, banks looked for ways to avoid paying negative interest on reserves. The SNB’s zero rate offered a safer place to hold funds without losses. This especially helped foreign banks, which typically face more risk from negative money market rates. By shifting their reserves to the SNB, they found a low-cost, low-risk way to manage cash.

Deposit Thresholds Help Banks Limit Exposure to Negative Rates

Under SNB rules, banks without minimum reserve requirements can deposit up to 10 million francs in sight without paying interest. This threshold offers some protection against negative interest for smaller amounts. It also explains why foreign banks, who often lack domestic reserve obligations, find it appealing. These limits help the SNB manage inflows while still discouraging very large cash holdings. The structure is part of a broader effort to avoid imbalance in the central bank’s financial system. This also allows flexibility for institutions managing liquidity.

Domestic banks follow a different setup called “tiered remuneration.” This lets them keep sight deposits up to 18 times their minimum reserve requirement with no charge. If their deposits exceed that limit, the SNB charges -0.25%. As such, it keeps the penalty 25 basis points below the official policy rate. This model aims to discourage banks from storing excess cash. Instead, the system pushes them to lend to other institutions or invest elsewhere. This helps maintain healthy liquidity across the Swiss banking sector.

Swiss National Bank Maintains Tiered Strategy to Support Market Liquidity

The SNB introduced this tiered system when it lifted interest rates above zero in 2022. The structure typically causes the Saron to remain slightly lower than the official policy rate. This gap encourages 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 the return to zero rates, the SNB continues to use this structure to manage liquidity.

SNB Unlikely to Earn Much From Negative Rates Under Current Framework

Between 2015 and 2022, the Swiss National Bank 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. Now, with the current structure and free thresholds in place, the SNB is not likely to collect much new income. Since only a small portion of total sight deposits are expected to exceed the penalty levels. Revenue from this area will probably stay low under current conditions.