“Practically speaking from the residents’ side, those who were thinking of making a deposit, maybe they should hurry to do so, fixing a higher interest rate now, than waiting for three months, maybe half a year, because the interest rates will decrease”, comments financial expert Ekaterina Govina at Delfi.
According to her, if the base interest rates decrease in the euro zone, it will also mean a drop in the yield of deposits.
“We can see a tendency for deposit interest rates to decrease slightly, but once the European Central Bank makes a decision to lower the base interest rate, it is likely that deposit interest rates will respond accordingly,” says the interviewer.
The European Central Bank (ECB) decided on April 11 not to change the base interest rates for now, but there is a high probability that this will be done in June.
Maximum yield on deposits in mid-April (according to financial institution and duration of deposit):
General Financing Bank CEO Justin Muleika tells Delfi that interest rates on deposits have already reached highs.
“We could observe the highest deposit interest rates in the market at the end of last year, and we believe that the peak of deposit interest rates in Lithuania has already passed. We can also see this from Euribor’s longer-term forecasts, which point to a fall in interest rates.
This is mostly determined by the market’s expectations regarding the European Central Bank’s presumed decisions to reduce base interest rates this year,” says J. Muleika.
Fjord Bank CEO Veikos Kandla is convinced that Lithuanian depositors can enjoy higher than 4% interest rates today. interest rates, when interest rates in foreign markets are already around 0.5 percent compared to Lithuanian ones. point smaller.
“Regarding interest rates in Lithuania, as in the entire euro zone, the peak has probably already passed and we can see lower interest rates in the future, especially considering the expectations that the ECB will set lower base interest rates,” comments V. Kandla.
In January, Delfi already fixed interest rates on term deposits. Corrections can be seen for the past three months. For example, 6 months the highest interest rate for term deposits in the banking sector was 4.1 percent, now it is 3.8 percent. At that time, 12 months 4.3% was available for a term deposit, and now it is 4.15%. interest. True, credit unions are now promising even 5 percent. interest.
It also decreased in 18 months. yield of long-term deposits in banks – from 4.5 percent. up to 4.15 percent Also 24 months. the highest interest rate decreased from 4.1 percent. up to 4 percent
“Residents are still enjoying the opportunity to get attractive returns when choosing this savings vehicle.” For example, in January residents entered into fixed-term deposit contracts for 266 million EUR (compared to December – EUR 196 million)”, Daumantas Skinkys, Economist of LB’s Macroprudential Analysis Department, told Delfi.
On the other hand, companies have already slightly reduced their term deposit portfolios.
Interest on term deposits for residents in specific banks, specialized banks and credit unions (the list of the latter is abbreviated). The highest interest rates currently offered in each segment are marked in gray:
According to D. Skinkis, the fate of interest rates for fixed-term deposits mainly depends on the ECB’s monetary policy decisions – they will mostly determine the price of money in the market (and therefore interest on fixed-term deposits).
“Markets currently expect monetary policy to loosen in the second half of 2024, but as we have seen, these market expectations have often been overly optimistic.” Therefore, if this year we get the agreed-upon reduction in the interest rates of term deposits, it is likely that it will not be fast”, said D. Skinkys.
According to him, it should be noted that Lithuanian residents and companies mainly conclude fixed-term deposit contracts of up to 1 year. This means that when interest rates start to fall, we probably won’t see a sudden shift of funds into checking accounts – residents and businesses will have to keep the deposit in the term account until the end of the term in order to earn interest.
This infographic illustrates the decrease in average annual interest rates for new euro deposit agreements already seen in February. If we were to judge from the comments provided by the experts, the curves should continue to go down:
Mr. Govina draws attention to the fact that Government savings bonds (this measure was revived after the increase in base interest rates in the euro zone) also promise lower interest rates.
“We can also see this in the Government’s savings bonds: if, let’s say, half a year ago the Government borrowed 3.8%, now I looked, 3.3%. We see a downward trend,” says Mr. Govina, referring to the March issue (see below).
“Unequivocally – to expect a decrease. It’s not good news for depositors, but it’s certainly good news for loan holders, because loan servicing costs will then decrease,” the expert added.
Government savings bonds – annual yield of all issues:
Swedbank’s Chief Economist Nerijus Mačiulis says that residents can already see the impact of the ECB’s intention to lower base interest rates.
“I can see it now. And here is a very important aspect that you don’t have to wait until June. The mere fact that the market has fully priced in the decline in interest rates is already 6 months in the making. Euribor is down more than 20 basis points from its peak in the fall. It also decreases in 3 months. “Euribor”, – said N. Mačiulis in the “Verslo tema” program of “Delfi”.
“What do Euribor futures show that at the end of the year, 3 months “Euribor should reach around 3%, that is, interest rates will be reduced by around 1 percentage point,” says the economist.
The Chairman of the Board of the Bank of Lithuania (LB) Gediminas Šimkus says that the ECB should reduce interest rates by 25 basis points in June, ELTA reports. He sees a high probability that interest rates will be cut more than 3 times this year.
The information provided is not a recommendation or an invitation to invest in specific financial instruments. Risk assessment is important when making financial decisions.
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