The effective lower bound (ELB) is the lowest level to which a central bank can reduce its policy rate before further cuts lose much of their effect. Cash has a nominal return of zero, so it becomes an alternative to assets carrying increasingly negative yields. The boundary is not necessarily zero: costs associated with withdrawing, safeguarding and handling physical cash may make slightly negative interest rates possible. Once policy rates approach the ELB, conventional rate policy has less scope to provide additional monetary stimulus. The central bank may then use measures such as purchases of financial assets to ease financing conditions through channels other than the policy rate.
Source: European Central Bank (ECB) (source). This glossary entry is an independently worded adaptation of the cited information.