Are You Stuck in a Liquidity Trap?

When interest rates on deposits are so low, and are likely to stay this way for many years, it is worth checking if investment arrangements are holding more cash than they require. One clear outcome of very low interest rates is the tendency for some savers to hold even more cash as they become more uncertain and risk averse. This is called a liquidity trap and it is one reason the RBA is avoiding the use of negative interest rates. Any investor who finds themselves in a liquidity trap should deeply question their decisions as better alternatives may be available.