In Cyprus, savers are currently facing the challenge of extremely low deposit rates offered by local banks. Despite having excess cash and offering some of the highest housing loan interest rates in Europe, banks provide minimal returns on deposits. To navigate this financial landscape and achieve better returns, savers must consider alternative investment options.
The low deposit rates in Cyprus (0.50-2.50%), fail to keep up with the inflation rate, reducing the purchasing power of savers. With inflation outpacing the returns on deposits, the real value of savings diminishes over time. This requires exploring investment avenues that offer higher returns and better protect savings from inflation. Deposits in Cyprus have been steadily increasing despite economic challenges, as evidenced by the latest deposits data. This trend shows that depositors in Cyprus have limited financial options beyond traditional bank deposits when it comes to alternative investment methods, or have limited financial knowledge to explore the matter further. There are various alternative methods outside from banks in which savers can have a better return on their hard earned money, keep up with inflation and preserve their capital.
High-Yield Savings Accounts in other European countries.
Options: Offered by non-traditional or online banks, these accounts often provide better interest rates than banks in Cyprus.
Benefits: Higher returns while maintaining the safety of a savings account. Very. low risk option for savers.
Example: Online banks in other European countries might offer higher interest rates on savings accounts compared to local Cypriot banks.
Bonds
Types: Government and corporate bonds.
Returns and Risks: Bonds offer fixed interest payments and are generally considered safer than stocks. Government bonds are usually lower-risk, while corporate bonds can offer higher returns but with increased risk. Very low risk for savers, especially in government bonds
Example: Investing in Cypriot government bonds could provide a stable return with relatively low risk.
Real Estate
Benefits: Investing in real estate can provide rental income and property appreciation.
Considerations: Requires significant initial investment but can be a stable and profitable long-term investment. It also has additional costs, management costs, taxes and many more.Moreover, investors should be cautious about their return on investment, especially when taking out a mortgage at high interest rates, as the typical ROI in Cyprus is around 5%. If the investment is not a bargain or bought at a price that is affordable, investors might be better off with other investment methods. Can be affected by current
Example: Purchasing rental properties in growing urban areas can generate steady income and potential capital gains. In addition people can also invest in real estate through a REIT.
Stock Market
Introduction: Investing in the stock market can yield substantial returns, though it comes with higher risk.
Potential for Growth: By buying shares of individual companies or investing in index funds, savers can benefit from the growth of the market over time.
Example: Investing in an index fund that averages 8% over the long term can significantly grow your capital through the power of compound interest. One great example is the S&P500.
Mutual Funds
How They Work: Mutual funds pool money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities.
Benefits: Professional management and diversification can lead to better returns and reduced risk.
Example: A mutual fund focused on European markets might provide exposure to higher growth regions compared to local bank deposits.
Always invest at your own risk and consider consulting a financial professional to ensure that your investment choices align with your financial goals and risk tolerance and personal financial condition.Do your own research.
With deposit rates in Cyprus averaging significantly lower than those in the rest of Europe and high inflation reducing savings, depositors should consider alternatives rather than the traditional savings methods. The cost of living is rising daily, and while the government attempts to provide incentives to combat inflation, the true solution lies in financial literacy of the depositors. By educating themselves on investment options such as bonds, mutual funds, stocks, real estate, and high-yield savings accounts, savers can better preserve and grow their money, ensuring financial stability in these challenging times. Seeking professional financial advice is also crucial to making informed decisions.
