Falling interest rates on savings accounts: how to defend yourself and where to invest?
The central bank’s recent decision to cut base interest rates has had an impact on savings account interest rates, which have been falling since the start of the year and are now facing another wave of decline. Nevertheless, people are not abandoning this banking product.
On Monday, the reduction in annual interest rates will affect clients of J&T Bank and Partners Bank. Interest rates will drop from 4.25% to 4% at J&T Bank and from 5.06% to 4.53% at Partners Bank. Raiffeisenbank will reduce rates from 5% to 4.5% from August.
“We are not happy about this, but due to the interest rate cut by the Czech National Bank, we have to cut our interest rate as well,” Partners Banka said on its website. The CNB has been gradually lowering base interest rates, which also affect rates on savings accounts. It last cut the rate by 0.5 percentage point to 4.75% at the end of June, which followed a cut in December.
However, some banks are increasing the base rate through marketing promotions and bonuses, which may be subject to various conditions. Banks also sometimes advertise new products with higher rates, while existing customers enjoy lower rates. Therefore, it is a good idea to check the terms and conditions and, if necessary, ask the bank to transfer you to a new type of savings account.
Despite falling rates, savings accounts continue to grow in popularity among savers. The share of Czech households with savings in savings accounts has risen to 58% from 52% last year, according to a survey by Kruk Czech and Slovak Republic.
Alternatives to investing
While it is still possible to earn five per cent interest per annum, which is above annual inflation, the situation can change quickly. If people need to have their funds available in the short term, banks recommend a term deposit, for example for one month, according to Petr Plocek of UniCredit Bank.
However, the problem is again the dependence on central bank action. Another option is to invest in mutual funds, where it is advisable to keep to the investment horizon, but if necessary, the units can be sold early, which will take about three working days, according to Ladislav Šlápota of Česká spořitelna. Care should be taken with fees, which can cause a loss on a short-term investment.
Tereza Kaiseršotová from Raiffeisenbank points out other pitfalls of investments. Most products offer the availability of funds within a few days, but an unsuitable market situation can cause you to get back less than you invested.
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