There is a new trend in the banking market. The past year has been very turbulent for the Russian economy and the financial sector. In March, deposit rates skyrocketed to 20% a year and then fell rapidly to 6-7% a year. Also, the shorter the deposit, the higher the rate on it. Now the situation has changed dramatically. Large banks give higher returns on long-term deposits. What is it connected with? And is it worth investing money for several years, even at a high interest rate? Let’s find out.
The shorter the better? It is not a fact!
In a period of uncertainty, it is difficult to plan for many years to come. Especially when it comes to hard-earned savings. Therefore, it is natural that last year the most popular among Russians were short deposits – three or six months. Yes, they had very high returns. But these terms quickly ended, and the prolongation of deposits was carried out at lower rates. As a result, those who exceeded often lost profits. Also, from the second half of 2022, banks began to grant higher yields to long-term deposits, from one to three years. Now the situation is even more favorable for long-term savings. At many banks, even large and systemically important ones, rates for long-term deposits have become higher than for short-term deposits. There are offers at 8% and even 9% per year. For example, at Otkritie Bank, you can make a reliable deposit at 9.5% per annum. And it is guaranteed to fix this profitability for three years.
For comparison, this is two percentage points higher than the key rate of the Central Bank. Now it is 7.5% per year. And it is unlikely that much will change in the near future. In addition, the Central Bank does not significantly change the inflation forecast for the next three years. For this year, price growth should be 5-7%, and in 2024-25 it will approach 4% per year. That is, with a high probability, a three-year contribution at 9.5% per annum will significantly exceed inflation. That is, with the help of such a contribution, one can not only save savings for three years, but also increase them in real terms.
What are the advantages of long-term investments?
The average term for which clients usually place money is one year. A golden mean. No more no less. But this is what is interesting. After the expiration of the deposit period, most clients leave the money in the same bank. The deposit is automatically extended for the period of the first placement. But already at the new rate, which at that time exists in the bank. If there is a downward trend in inflation, this leads to the deposit becoming less profitable. Money is not working as efficiently as it could.
Without further external shocks, we can expect a further decline in inflation in the next year or two. This, in turn, will lead to lower rates for all deposit terms. In such a situation, it seems very attractive to fix the income from a deposit for three years at the level of 9.5% per annum.
Also, in difficult times, reliability becomes the most important criterion for evaluating financial instruments. In a context of economic uncertainty and external restrictions, the main objective of many Russians is to save what they have accumulated. A bank deposit is the most understandable and reliable way to do it. And if, on the deposit, you can also get an income above inflation, then such an instrument becomes even more in demand. Furthermore, such bank promotions are unlikely to be long-term. To fix a good income, it is better to hurry.
The ideal strategy is diversification.
In tough times, it’s important to remember another important investment rule: diversify. Including deadlines. It is advisable to place free money not only in different financial instruments, but also for a different period of time.
For example, it is desirable to keep half of the savings on deposits in banks. That is, in the most conservative instruments involving state protection (the state insures deposits in the amount of up to 1.4 million rubles in a bank). In this case, the total amount of savings in the bank can be divided into several parts. For example, open deposits for six months, one year, two and three years. Such a “deposit ladder” will allow both to maintain a good income and to leave room for maneuver in the near future.
Another way to diversify is to open multiple deposits with different interest income payment methods. For example, at Otkritie Bank, when making a reliable deposit, you can choose one of three options for receiving interest: monthly, at the beginning and at the end of the term. The bet size changes. The maximum rate on a three-year deposit with interest at the end of the term is 9.5% per year, with a monthly payment: 8.39%, with interest at the beginning of the term: 7.39% per year.
In general, if you correctly approach the formation of your own savings portfolio, there is no reason to be afraid to “freeze” savings for three whole years. On the contrary, it is a very reasonable personal finance management strategy that includes elements of long-term investments and protects its owner from both inflation and other non-economic or market risks.