Cyprus vs rest of Europe:
If you’re living in Cyprus and have savings in a local bank account, or are familiar with our financial scene, you’ve probably noticed the exceptionally low deposit rates on offer. Cypriot banks, known for keeping mortgage interest rates high at an average of 4.49%, offer some of the lowest deposit rates in the European Union. According to the European Central Bank, Cyprus ranks second lowest for 1 to 2-year deposit maturities in the EU, while holding the 4th highest position in mortgage rates. This stark contrast highlights unique challenges for savers in Cyprus.
Have a look at the data published by the European Central Bank:
Interest rates at an average of 4.90%, and one of the highest rates in Europe make the investment in financed real estate sound unreasonable. And at the same time, keeping your excess money in a bank account here in Cyprus, sounds even more unreasonable at the rates provided from our banks. Please take a look at the current EU deposit rates published by the European Central Bank.
It's impossible for a Cypriot household to beat the current inflation rates, by keeping their money saved up in a high yield interest account provided by a Cypriot bank. The above charts confirm that people would be better of looking for alternatives if they have excess cash saved up.
Why Are Deposit Rates So Low?
- Aftermath of the 2013 Crisis: The 2013 financial crisis led to major reforms in banking policies. To stabilize the economy, the Central Bank of Cyprus kept interest rates low, making borrowing money cheaper at the expense of savers. Deposit rates have been the same since 2013.
- European Central Bank Influence: Being part of the Eurozone means our rates are influenced by the European Central Bank. The ECB has kept interest rates low across Europe to boost the economy, which trickles down to our local banks.With the current Euro Area average being at 3%, we still have long ground to cover to come close to that.
- Too Much Liquidity: Cypriot banks have more money than they need to lend out. This surplus means they don’t need to offer high interest rates to attract more deposits.
What This Means for Your Savings:
- Slow Growth: Your savings are growing slower than they would in other European countries. To get better returns, you’ll need to look at other options.
- Inflation: Your money loses value if stored in a low-interest savings account, as it gradually loses purchasing power each year that passes.
- Plan Ahead: Whether you’re saving for a home, education, or retirement, factoring in these low rates is crucial. Make informed decisions to ensure your financial goals are met.
Exploring Alternatives: Save money, beat inflation. Diversifying your investments can help you get better returns.
- Invest Abroad/ European bank accounts: Look into high-yield savings accounts in other Eurozone countries for better returns. Keeping excess cash saved up in foreign bank accounts that will give you a higher rate of return is a great alternative. It's much easier than it sounds.
- Investment Funds: Mutual funds and ETFs can offer higher returns than savings accounts, though they come with more risk. If you are into the long game, placing your money with the help of an expert, at a market fund which might be a mix of stocks, bonds, and high interest savings accounts can be a one of the best alternatives if done correctly. Professional help is highly recommended.
- Real Estate: Property investment in Cyprus can be lucrative. This can be a good option if you are a cash buyer with a deal that can bring more than 5% return on your investment. If you are borrowing money from a bank in Cyprus, your investment must be a bargain to make sense given the current lending and inflation rates.On the other hand real estate can have some appreciation in the long run and your return on investment might differ, but we should compare the total projected ROI with other financial products, as to ensure we are making the best decision possible. Before deciding to invest in real estate, seek the help of a real estate professional and follow the numbers as they always tell the truth.
- Bonds: Bonds are a safer option compared to stocks, giving steady returns over a fixed period of time. Current bond return rates are relatively high, which gives passive investors an excellent alternative rather than keeping money in a savings account.Government bonds are considered to be the safest bond option. Professional help is highly recommended.
Whether you're saving for retirement, a new home, your family’s needs, or just a rainy day, maintaining your money’s purchasing power is crucial. Beating inflation is challenging, but there are safe ways to preserve the value of your money in this high-inflation world. Given that Cypriot bank accounts currently offer very low returns, it's essential to explore alternatives to ensure your savings grow effectively. In contrast, our banking system should take example and align with the rest of Europe in providing better return options for their people.
