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Friday 19.01.2018 | Name days: Alnis, Andulis

Deposit yield four times lower in year and a half time

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU

Within year and a half, deposit yield at the Latvian banks has overall dropped 3.5 to four times, but in the last six months – almost two times. While the interest rates of 12-month deposits in lats currently form only 3.5%, after accounting for 5.5% to 6% last November, according to the portal data.

The deposit yield decline has contributed to the emergence of new trends. If during the period 2009 – 2010 Latvia’s population preferred short-term deposits, this spring long-term deposits ranging from one year or longer prevail.

Swedbank’s Investment Product Department manager Reinis Jansons explains such a dramatic deposit interest rate drop urges depositors to assess term deposits thoroughly and choose deposits with the most beneficial conditions and highest interest rates. For example, in early 2010, when deposits with increased interest rates accounted for 37% of all Latvian household deposits, in late 2010 they had already increased to 45%. People are mostly keeping their money in bank accounts. They are waiting for deposit rate growth to place their spare funds on more favourable interest rates, Swedbank’s expert indicates.

According to Citadele Bank experts, even two years ago, people in Latvia preferred placing their funds on short-term deposits for the period of one to three months. Currently, 6 to 12-month deposits are the most requested. Such depositors choice can be explained with the fact that deposit rates are falling all the time – for the short-term deposits they have dropped almost to zero, hence they have become less attractive for depositors. Our estimates indicate over the last year the return on 3-month deposits in lats has fallen by 95%, on deposits in dollars – by 68%, while on deposits in euro – by 65%, the bank’s representatives specify.

The second trend mentioned by the banking experts is the so-called structured deposits’ increasing popularity. Their yield is determined by various financial assets; so, as a rule, the profit from such deposits is higher than of ordinary deposits.

Despite the term deposits are still the most popular, constituting 48% of all the bank’s deposits, the Progressive deposit popularity keeps growing, SEB bank’s spokeswoman Ieva Tetere characterizes the current situation in the deposit market. Presently, more than 25% of SEB bank’s traditional and progressive term deposit contracts are concluded via the Internet bank.

When analyzing the Progressive deposit offers in 2010, more deals relating to raw materials and precious metals were required. Based on the amount of deposited funds and the client’s applications, last year the most demanded offer was the Progressive deposit Gold. While in terms of yield, the best indicators were observed for the offer Raw Materials and Metals deposit – its underlying asset return on February 1, 2011, comprised about 43%.

As regards deposit rates, all the surveyed banking experts by the portal indicate significant changes are not expected in the next six months. The reason – the lat currency balance, which is practically not used in lending. While the return on term deposits in euro might slightly increase in the next six months due to the ever-increasing inflation rate in the euro zone. found that currently high interest rates on term deposits are offered by small banks, such as the Regional Investment Bank, SMP Bank, PrivatBank and Trasta komercbanka. The current best offer yield on 1 000 lats deposit for 12 months constituates 3.05 – 3.5% per year. The yield on such large deposit in euro and US dollars for the same period is similar: for euro deposits – 3.5% to 3.65% per year, while for US dollar deposits – 3% to 3.4% per year.

Another trend indicated by the surveyed banking experts – the average depositers’ age is increasing. For example, SEB bank’s representatives have observed that the most active «investors» are elderly people – 55% of the bank’s total volume of term deposits have been deposited by clients, aged 50 to 74 years.

While the deposits of Citadele’s clients, in the age group 60 to 70 years, comprise 24% of the bank’s total deposits. At the same time, Citadele ranks first in terms of deposit volume, particularly, its clients, in the age group 50 – 60 years, with deposits comprising one-fourth of the total deposits.

Interestingly, banks also have quite «exotic» investors. SEB bank has clients who are only few years old. Their relatives accumulate savings on their name at the Maturity deposit. Moreover, there are also about thousand solid pensioners, aged 80 years and more among the bank’s clients, reveals Ieva Tetere.

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  1. Clara says:

    How it is possible to save when we have no money to feed kids?

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