Since mid-August, the Central Bank’s key interest rate has doubled: from 7.5 to 15% annually. Thus, the Central Bank fought two problems at once: growing inflation and the weakening of the ruble exchange rate. The key rate affects the rates on deposits and loans: in other words, saving becomes more profitable than spending, which reduces price increases and strengthens the national currency. What is the most profitable way to keep free money now? Which strategy is best for ordinary Russians to follow?
THE MOST FAVORABLE RATES – FOR THREE YEARS
Most banks have already responded to the recent increase in the Central Bank’s key rate. Deposit rates went up. And it is significant. On average, they range between 13 and 15% annually. But it all depends on several factors. First of all, it depends on the term of placement of funds. A situation has arisen when the rate on three-year deposits is, as a rule, higher than that on “short” deposits.
This is explained very simply. Most banks believe that the period of tight monetary policy by the Central Bank will last relatively short: six months at most. According to analysts, the current interest rate is enough to contain inflation. This means it is unlikely to continue to rise. And in the future it will continue to decrease. Therefore, it does not make sense for banks to lock in high returns for a long period.
You don’t have to look hard to find examples here. A similar scenario will materialize in 2022. Let us remember that last March the Central Bank drastically increased the interest rate, immediately up to 20% annually. And then he started to reduce it step by step. As a result, in six months it decreased almost three times: up to 7.5% annually. Of course, according to the Central Bank, this time they will not rush to reduce the interest rate. There are quite a few pro-inflationary factors.
THE INCREASE IN PRICES SHOULD DOWN TO 4% PER YEAR
As the director of the Central Bank, Elvira Nabiullina, recently stated, this will take “several quarters.” At the same time, there will remain a very large disproportion between the value of money (that is, the rates of the economy) and the rate of depreciation (inflation).
A simple example. Now the key rate is 15% and inflation is 7.5%. In the coming years, inflation should fall to between 4 and 5%. But the key rate will be much higher. For 2024, the Central Bank predicts an average “key” rate of the order of 12.5 – 14.5% per year. In 2025, between 7 and 9%, and in 2026, between 6 and 7%.
The main objective of the Central Bank remains unchanged. The financial regulator believes that inflation should fall to 4% annually and consolidate at this level. They plan to reach this indicator in 2024. This explains the rather strict monetary policy of the Central Bank. Low inflation, according to the Central Bank, is the basis of the economy. Consistently low price growth is more conducive to development.
It may happen that the current 13-15% per annum, which can be obtained now, will turn out to be an extremely advantageous offer in a few months. In order not to bite your elbows later, at least a small part of the money should be placed in longer-term instruments (deposits for a year or more).
DISTRIBUTION OF SAVINGS BY TERM
In other words, the current policy of the Central Bank is good for savings. Because your real purchasing power will increase. But this is a very bad time for credit purchases. That’s why now it’s better to save than spend.
At the same time, uncertainty is always present in the market. There is the most likely scenario for the development of events. But the increase in prices and the exchange rate of the national currency is influenced by many factors. And it is not possible to predict all of them. During what period in such conditions is it better to place money to obtain maximum profitability?
The big disadvantage of even short-term deposits is their limited liquidity. That is, you will be able to use the money without losing interest only by closing the deposit at the end of the term. If funds are urgently needed, they can be withdrawn, but only within the amount originally deposited.
VARIABLE INTEREST RATE
You should definitely keep part of your money not in deposits, but in savings accounts (this is a more flexible instrument). Its great advantage is that you can withdraw money from these accounts at any time, without losing the previously accumulated interest.
It is worth remembering the differences between a deposit account and a savings account. First of all, the deposit is opened for a certain period. And the savings account has no expiration date. The deposit rate is fixed in the contract and cannot change during the entire term. But on a savings account, the bank can change the rate at any time.
But this can be perceived as a plus and a minus. For example, those who until August kept funds in a long-term deposit at 6.5 – 7% per year are now envious of those who left part of the money in a savings account and can now receive more of their savings without doing anything additional for this one.
TWO WAYS TO PAY INTEREST ON THE BALANCE
An important nuance. Interest on the balance of savings accounts in different banks may be calculated differently. And profitability can vary greatly from this. One way is with a minimum balance during the month. For example, if you kept 300 thousand rubles in your savings account for 29 days and the day before the end of the month you decided to withdraw 270 thousand, the bank will multiply the bet not by 300, but by 30 thousand. It will turn out pennies.
The second method is for the average monthly balance. Here the client’s income is calculated differently. The bank takes the account balance at the end of each day for a month and charges interest. And at the end of the month add these values and pay the income. That is, you will be able to manage your money with greater freedom. And don’t worry because your profits will drop to zero.
Previously, banks most often used the first option. But we are faced with the fact that clients prefer to keep their money where interest accrues daily, and not once a month on the minimum balance. The second method is more honest. More and more banks are adopting it. But before depositing your money in a savings account at a particular bank, be sure to clarify the terms for calculating interest.
BASE RATE MORE…
Another stereotype about a savings account is the relatively low base rate. Understanding that customers can withdraw money at any time, the bank secures its obligations by offering a lower rate. But this practice is also becoming a thing of the past. Now on the market (thanks to the competition) there are offers that allow for good profitability for this product.
For example, at VTB you can now open a savings account in rubles, where clients can receive 15% per year for the first three months. Then, those who receive a salary or pension with a bank card and also actively use it can count on additional supplements to the base rate, which depends on the service package and ranges from 7 to 9% per year.
For example, if a retail payroll client, who previously did not have a savings account in a bank, deposits 100 thousand rubles into it at the end of November, and then, throughout the year, replenishes it with 10 thousand rubles at the beginning of each month and meet the conditions for spending on bank cards, then in a year, if the current conditions of the product are maintained, your income will be 22 thousand rubles and the total amount on the account will be 242 thousand rubles. open your account or withdraw money from it at any time without commission and without losing previously accumulated income.
“The time has come for investors in the market, so we recommend taking advantage of all opportunities to earn higher income,” says Natalya Tuchkova, head of the VTB Savings department.
TOTAL
To do?
It is difficult to give an exact recommendation. In the current conditions of uncertainty, it is better not to make guesses, but to diversify in terms of terms and instruments. In particular, divide the free money into several parts. For example, three. Deposit one part in an annual deposit, the second in a semi-annual deposit and the third in a savings account. Then you will be able to provide your savings with good profitability and high liquidity.
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