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Long-term deposits: advantages and disadvantages

In recent years, there has been a trend in the world to reduce the maturity of deposit programs, when depositors are increasingly attracted to short terms and are less likely to look for long-term deposits. This is a tendency that is also characteristic of Ukrainians, especially after a full-scale invasion. Thus, as of March 2023, only 7% of the population's funds were placed in long-term deposits for 1 year or more. This article explains why this approach is not optimal and why now is a good time to place long-term deposits.

Should you place long-term deposits?

In conditions of instability, it is difficult to plan for the long term and it is unwise to freeze all your savings for a long time. However, not only our present, but also our future depends on our financial decisions, so it is still advisable to place part of your funds in a long-term deposit.
The optimal solution would be to distribute your funds between several deposits for different terms, choosing a short-term deposit and a long-term deposit for 1 year or 9 months. In this way, you will be able to react more flexibly to changes in rates and have both funds with quick access in case of unforeseen situations, and an intact reserve that you have set aside for a dream or a more secure old age, or to receive additional monthly income in the form of interest on the deposit.
If you go to another region or abroad, when the term of the deposit expires, you can withdraw your funds at any ATM, and if the bank is declared insolvent, you will receive all your money through the Deposit Guarantee Fund. So, in any case, you will save your funds, while multiplying them.


Deposit rates for short-term and long-term deposits

Traditionally, the longer the term of the deposit, the higher the interest rate will be, because attracting long-term resources is more expedient and profitable for banks. However, given the current turbulent situation and very restrained lending, banks are not ready to fix maximum rates for long periods, and depositors are not ready to freeze their own funds for a long time.
As a result, as of August 21, 2023, interest rates on short-term and long-term deposits have practically equalized. The situation varies somewhat depending on the size of the bank. Thus, according to the UIRD index, the average interest rate on deposits for 12 months in the largest banks is 14.71%, and for 3 months - 14.14%. At the same time, if you take the market as a whole, you will be able to find 18-19% on deposits for 3 months, and on long-term deposits the interest rate will be 1% lower.


A long-term deposit is a fixation of a high rate for a long time

Interest rates on deposits directly depend on the level of the National Bank's discount rate. For more than a year, the regulator kept it at a record level of 25% per annum, but on July 27, 2023, it immediately reduced it by 3 percentage points. Banks immediately reacted to such a sharp decline. If in July it was possible to find deposits at a rate of more than 20%, then in August the maximum rate did not exceed 19%.
Given that the NBU plans to reduce the discount rate to 18-19% by the end of 2023, depositors will no longer see deposits at 19%. Therefore, the next few months are the last opportunity to lock in the current high yield of deposits for the next calendar year.
If you place a deposit for a long time, you lock in the return for that entire time. Banks are prohibited from changing interest rates on existing deposits, so you are guaranteed to receive a constant income throughout the term of the deposit.


Long-term deposits are an alternative to investing

For Ukrainians, a long-term deposit is one of the few opportunities to invest during the war. Other investment instruments are either more risky, such as buying real estate, or have certain restrictions, as in the case of withdrawing funds abroad.
If you evaluate the accessibility and comprehensibility of the process, the low initial amount of the investment, the absence of risks thanks to the guarantee of deposits and a fairly high yield, then long-term deposits are undisputed favorites with each of these indicators. Any adult with a passport and a taxpayer code can place a deposit, spending no more than an hour of their time on it, and receive their guaranteed income at the level of more than 15% per annum in UAH.


Long-term deposits in Agroprosperis Bank

In Agroprosperis Bank, you can place long-term deposits for 1 year at a maximum rate of 18.25% per annum in UAH, and for short-term deposits for 3 months you will receive up to 17.5% per annum. The highest rates apply to the Classic+ deposit.

Oleksiy Kiyashko Deputy head of the SME and retail business department

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