Interest rates on deposits are going down. Domestic banks and credit unions are pushing for this by the decreasing rates of the Czech National Bank, where the most basic – the two-week repo rate – is currently 5.75 percent.
Compared to last year, the drop in tariff rates is not so noticeable at first glance. While the CNB has reduced the base rate by 1.25 percentage points from December to the present (from June 2022 until December 2023, it kept it at seven percent), banks are reducing interest on savings accounts by tenths of a percent.
Among the large banks, Česká spořitelna was the most radical in reducing rates. The bank with the largest number of clients in the country sent the basic interest rate on the savings account down by 0.75 percent to 2.25 percent. At the same time, however, it left the possibility of earning up to five percent to those who regularly invest, only more complicated – they must have a Plus account, use George electronic banking and put aside at least 2,000 crowns for investments every month (last year, 300 CZK was enough).
Raiffeisenbank offered an interest rate of 5.5 percent last year, now it is five percent. Komerční banka also went down by half a percentage point to 4.5 percent. Creditas cut interest rates by four tenths of a percentage point to 5.2. Moneta Money Bank reduced the interest rate from 5.3 percent to 5.1 percent, J&T Banka went down by a quarter of a percentage point to five percent, and VÚB and Max banka also practiced a similar decrease in interest rates.
Higher interest yes, but you have to try harder
More radical, however, is the hardening of the conditions under which it is now possible to obtain the maximum interest. For example, ČSOB, the bank with the highest balance sheet in the country, has kept the basic interest rate at five percent, but while last year it was enough to open an account online, now clients must actively use the application and pay by card at least five times a month. Those who do not meet these conditions will receive a significantly lower interest rate – only 1.5 percent.
Komerční banka also followed a similar path. In addition to reducing the maximum rates on the savings account by half a percentage point, it made this interest conditional on several steps – on the one hand, by requiring savers to use its application. Those who have not switched to the digital world will receive an interest rate of only four percent.
The second condition is to regularly invest at least 1,500 crowns per month in designated funds of the bank. The bank had this requirement in the terms and conditions last year as well, but while last year the client received an extra 1.5 percentage points in interest for this activity, today it is already 2.5. In other words, last year even a passive client received an interest of 3.5 percent, this year he will receive only two percent.
Trinity bank even increased the rate to the most lucrative offer on the market to 6.31 percent (partners banka, VÚB for the delivery of additional clients and Air bank also offer an interest of around six percent). In exchange, however, she reduced the limit of such an interest-bearing deposit from half a million to a quarter.
Anyone who wants to get a similar valuation today as last year must be constantly on the lookout. Orientation in bank offers compared to last year is also made more difficult by the fact that tariff rates change much faster. While a year ago financial institutions were able to guarantee their clients interest rates for several months due to the CNB’s fixed rates, this year it only takes 30 days, and moreover, the change dates do not always start on the first day of the month.
For example, Air Bank offers an attractive interest rate of six percent on a savings account, but only until April 11, then the interest rate will drop by one percentage point. UniCredit Bank has maintained the interest rate of 2.5 percent, but while last year it was able to guarantee it until the end of June at the beginning of May, this year it is not providing any guarantee. Trinity bank was even the champion in the length of the guarantee last year – in May it offered it until the end of 2023, this year it no longer offers the guarantee.
Jana Dvořáková, who last year actively moved money to different places depending on who offered a higher interest, confirms that today it is difficult for her to catch all the changes. “Last year I was able to appreciate the savings at the best rate, this year the conditions are changing faster and I’m tired of watching it. I have money in two accounts and I am not planning any changes,” says a woman from Central Bohemia.
What is a savings and term account
Savings account
Bank account for better evaluation of clients’ money. It is therefore not used for current payments like a current account, and higher interest rates are usually “redeemed” by various conditions – for example, the amount of the deposit, several card payments during the month, regular investments, the length of time the deposit is kept, etc.
However, you can withdraw money from it at least once a month without penalties or fees. People usually keep money in these accounts that they don’t necessarily need right now, but have it as a reserve for sudden payments – buying appliances, extra energy bills, car repairs, loss of income due to illness, etc.
Term account
A bank account for better evaluation of clients’ money, in which a specific amount is deposited for a certain period of time under predetermined conditions. During this period, the agreed interest rate applies and the client does not have the option to withdraw the deposited funds without penalty.
Term accounts can have better or worse interest rates than savings accounts depending on the duration of the deposit, which is usually in days, weeks, months and years.
Due to the fluctuating conditions of savings accounts, some clients prefer to transfer their savings to fixed-term accounts. This is confirmed, for example, by Monika Hořínková from ČSOB: “Term deposits are very popular. In times of falling rates, clients appreciate the rate guarantee valid for the entire duration of this deposit.”
Spořitelní družstvo NEY offers the highest appreciation on term accounts with the so-called dual deposit. However, the interest rate of 10.8 percent per year is only available to those who are members of the cooperative, save at least 100,000 crowns in it for one year and, in addition, put 50 percent of their interest-bearing deposit into the cooperative, which significantly reduces the benefit of interest.
The classic bank interest rate is thus now the highest at Creditas banka and Max banka (5.3% for a three-month or one-month deposit, respectively). In second place is the Peněžní dům pawnshop (5.2%), and in third place is Moneta Money Bank and UniCredit Bank with an interest rate of five percent.
Banks also cut interest on current accounts, although this was always a minority offer. While four banks offered such interest rates last year, this year there are three. However, they all have different conditions or limits for such interest.
The only bank that did not require any limits last year and at the same time offered an interest rate of 4.61 percent – Max banka – no longer offers such an interest rate. “We abolished interest on the current account in January this year, because clients were still using the savings account, where the interest rate is higher,” explained Max banka spokeswoman Anna Bakošová.
A fall in rates will change the portfolio
What will happen to interest rates and savers’ deposits next? According to Michal Dědek, the founder and head of the financial consulting company SFG, together with the decrease in the basic interest rate, the rates on savings accounts will also decrease and may even fall below the four percent threshold. People will therefore look for suitable placement alternatives and will try to invest more in addition to term accounts.
“With the reduction of rates, however, there is a risk that high-interest investments in low-quality corporate bonds will reappear, on which at least 10 billion crowns have been burned in the Czech Republic in recent years. On the other hand, investments in high-quality corporate bonds, ETFs or other funds can be a suitable alternative,” adds Dědek.
Vojtěch Železný, portfolio manager of the investment company EMUN, is convinced that a greater transfer of deposits to funds will only occur when interest rates on savings accounts fall below three percent. “Many investors will make decisions based on how these instruments have performed in the past. However, this is not the best way to make a decision, as government bond funds with a fixed coupon, whose income potential has already significantly decreased, have done well,” explains Železný.
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According to him, it is important to compare the current parameters of bond fund portfolios, such as credit risk, yield to maturity and sensitivity to interest rate changes. “An interesting alternative for clients who can invest at least one million crowns are government bonds with a variable coupon. Those that were issued after 01/01/2021 then give the holder a great advantage, they do not have to pay tax on interest income and the interest rates are higher than on time deposits,” recommends the EMUN manager.
Petr Čajan from the consulting firm Premium Financial Services, on the other hand, expects that Czechs will not jump enthusiastically into mutual funds or the stock market, and so they will prefer to transfer their savings to real estate, the prices of which are already rising slightly in some locations. According to him, cheaper mortgages will also help.
Alan Pock, head of the crowdfunding investment platform Investown, believes in a similar direction. “We see that our loans secured by real estate, in which clients can invest from as little as 500 crowns, are a frequent alternative to more conservative bank products. It yields an average of 10.07 percent, and their security is ensured by real estate, which as Czechs we trust so much,” says Pock.
2024-04-04 03:30:00
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