Personal investments: Deposits for which rate growth is resumed

Author

Vadym Makeiev

The deposits remain the most popular investment instrument among Ukrainians. As of November 1, 2021, the total amount of the individuals' deposits in Ukrainian banks approached 630 billion UAH. Of this amount, 385.8 billion UAH are the deposits in national currency and 243.5 billion UAH—in foreign currency. Over the year, the total amount of deposits increased by 54 billion UAH. This follows from the Deposit Guarantee Fund data.

In the first half of the year, the dynamics of deposit rates was negative due to the high liquidity of the Ukrainian banking system. In other words, banks reduced interest rates on deposits because they did not need such financing, and their loans were not in demand. According to the NBU, in May—July, banks' interest rates on new deposits in hryvnia for the individuals remained in the range of 7.5—8.0% per annum, which was significantly lower than the inflation rate (9.5%).

At the same time, the growth of the National Bank discount rate restrained the fall in interest rates on deposits. This year, the regulator revised the rate upward—it increased from 6% to 9% per annum.

Deposits as an investee: pros and cons

In general, a deposit is a way to save and increase your funds. A person puts money in a bank, and it pays interest every month or at the end of the term. The interest amount usually depends on the deposit term: the longer it is, the higher the return on investment.

In practice, reality proves to be more complex. Including the dependence of the interest amount on the deposit term—there are periods when the interest is higher on "short-term" deposits. Now the rates are increasing as the deposit term grows. This is because the banks hope that inflation will remain high and that the NBU will not reduce the discount rate in the near future.

The disadvantages of the deposits include their relatively low profitability. Thus, the average rate of the Ukrainian banks in December ranges from 7 to 8%. In addition, banks withhold 18% personal income tax and 1.5% military tax from the interest income.

However, the low profitability is partly offset by the reliability of this instrument. According to the law "On the system of guaranteeing deposits of individuals", all deposits up to 200,000 UAH (including interest) are insured. If the bank goes bankrupt, clients will get compensation from the Individual Deposit Guarantee Fund (IDGF). At the moment, the IDGF register includes 70 banks, and 98% of depositors fall within the Fund's guarantees.

The main advantages of deposits are high liquidity and guaranteed profitability.

How to choose a deposit in Ukrainian banks

The main characteristics of the deposit include the term for placing funds, the interest rate, the possibility of replenishment and early termination, as well as the deposit capitalization—when the bank adds interest to the deposit principal amount and one can get interest on interest.

When choosing a deposit, first of all, it is worth determining the currency and the deposit amount, as well as the deposit term. Decide whether you need an early withdrawal option. Deposits with early termination are not profitable for banks, so they significantly reduce interest on them.

An obvious recommendation: to choose a bank responsibly. Often, some banks offer relatively high interest rates, but one needs to understand why the bank is so actively raising money. It is highly likely that it is trying to solve some of its problems at the expense of depositors' funds. It is worth paying attention to the credit rating and the liquidity of the bank's assets.

One should study the deposit terms and conditions and clarify all incomprehensible provisions in the agreement. The practice of indicating the most important conditions in contracts in "small print" is a thing of the past, but one needs to be careful.

Pay attention to seasonal bank offers and bonus programs.

How to get more from the deposit

Today, a lot of banks offer to make a deposit online. This is how banks reduce the burden on branch employees and promote their products. To interest depositors, the banks may offer online higher rates or better terms and conditions.

For example, when opening a deposit in the Alfa-Bank mobile application, the rate will be 0.5 percentage points higher for the hryvnia deposits and 0.25 for the foreign currency deposits. PUMB promises to add 1 p.p. for opening a deposit through Internet banking. OTP Bank also offers plus 0.5% p.p. when making a term deposit via Internet banking. Universal Bank is ready to add 0.5 p.p. for making a deposit through a chatbot on the website or in the messengers.

Actual deposit rates of major Ukrainian banks