In the conditions of martial law and macroeconomic instability, along with the question of their own security, Ukrainians face another, no less important question - the security of their funds. How not to lose savings in these turbulent conditions? How to protect and multiply them? In which currency is it better to save money? In this article, we will consider the advantages and disadvantages of saving funds in different currencies, compare the benefits and risks of each type of savings and determine in which cases it is better to open a deposit in which currency.
We will state right away that in this material we will not consider the option of storing money at home under the mattress. Cash can be stolen, damaged or completely destroyed by fire, flood, war and natural disasters. Keeping funds in the bank is much safer, and placing funds on deposit also helps to compensate for inflation risks and receive additional income. The full-scale invasion made it clear that, under any circumstances, money in the bank is just as available as money in the pocket. Even in the first days of the war, Ukrainians could easily pay by card and withdraw cash not only on the territory of Ukraine, but also abroad. Moreover, even if the bank was declared insolvent, you can get your money back remotely from anywhere in the world.
Which deposit is profitable
In order to correctly choose the currency in which to open a deposit, you must first determine the purpose for which you are saving funds. We can conditionally highlight the following main purposes that the deposit serves:
- Passive income. If your goal is additional monthly income for current expenses, then high yield in UAH, the currency for daily calculations, is important to you.
- Short-term savings. If you are saving for a large purchase, for example, a new car, an apartment in a new building, studying at a university, traveling, etc., then, on the one hand, it is better for you to save in the currency in which you will make the purchase. On the other hand, if you receive all your income in UAH, but you plan to buy in USD, then it is wise to separate your funds and keep them in both currencies.
- Long-term savings. If you are saving for a secure old age and early retirement, it makes more sense to keep the funds for decades to come in hard currency - USD or EUR.
- Protection of savings. If you want to protect your funds from depreciation, then for greater protection against inflation and devaluation risks, you should diversify your deposit portfolio and keep part of your deposits in UAH, and part in USD or EUR. For example, two-thirds of funds should be kept in UAH, and one-third in foreign currency, but everyone determines the optimal proportion for themselves.
Deposits in UAH and foreign currency can be compared with each other according to the following main parameters:
- Yield - the level of interest rates on UAH deposits and foreign currency deposits.
- Devaluation risk – a possible decrease in the exchange rate of the national currency to the foreign one.
- Simplicity - how convenient and easy it is to place a deposit and withdraw funds.
Let's consider each of these parameters in more detail.
Rates on deposits in UAH and foreign currency
The level of interest rates on UAH deposits is significantly higher than rates in USD or EUR. The reason for this is, on the one hand, the lack of demand for foreign currency loans among the population and businesses, and on the other, systemic measures of the National Bank to reduce UAH inflation. In particular, they should include increased reserve requirements for balances in foreign currency and, in contrast, high rates for NBU certificates of deposit. All this increases the attractiveness of UAH funds for banks, and as a result, higher rates on UAH deposits for depositors.
The average level of interest rates on individual deposits for 12 months as of December 11, 2023 is 14.15% p.a. in UAH, while in USD it is only 1.08%.
Today, it is safe to say that the yield on UAH deposits exceeds the inflation rate. According to the results of 2023, consumer inflation is expected at the level of 5.8%, while it is possible to place a UAH deposit for 12 months in Agroprosperis Bank at 16.75% p.a. So, you will not only save your savings from depreciation, but you will also be able to earn an additional 10.95% income on them.
At the same time, you will earn no more than 1% p.a. on a deposit in USD, without taking into account the depreciation of the USD. These numbers give a clear answer to the question - which deposit is profitable.
Historically, the UAH has gradually lost value compared to the USD. Over the past 15 years, the exchange rate of our national currency has changed from 5 UAH/USD. up to UAH 37/USDThat is why Ukrainians traditionally trust foreign currency more. However, if you follow the changes in the UAH cash rate against the USD over the last year, the situation turns out to be the opposite. At the beginning of the year, the exchange rate was higher, and at the end of the year we see a significant decrease, similarly in the case of the euro. That is, the UAH has strengthened significantly this year. So, if you placed a UAH deposit for 12 months in December 2022, you would earn both interest and the USD exchange rate.
As of December 12, 2022, according to the NBU, the weighted average cash rate of selling the USD was UAH 40.00/USD. and for UAH 100,000 you could buy USD 2,500. You can sell these USD in a year on 12.12.2023 for UAH 37.13, that is, you will receive UAH 92,825. So, for UAH 100,000, you would lose UAH 7,175 just from one exchange rate fluctuation.
And if on 12.12.2022 you decided to put this UAH 100,000 on a deposit in UAH at Agroprosperis Bank for 12 months at 18.75% p.a.? Then you would receive 15,000 UAH of net income after taxes per year! And 115,000 UAH could buy 3,050 USD today. The answer to the question in which currency is better to open a deposit is obvious.
Unfortunately, today there is a risk of a reduction in macroeconomic assistance to Ukraine in 2024 and, accordingly, a risk of an increase in the UAH exchange rate against the USD. In this regard, it makes sense to keep a certain part of funds in foreign currency.
The process of placing a deposit in UAH and foreign currency
Let's consider the most typical situation when you receive income and plan to spend money in UAH. If you keep money in USD, then in such a situation, first you need to buy a USD at the selling rate, and then you need to surrender a USD at the buying rate. The difference between the selling and buying rates is approximately UAH 0.5 per unit of currency, therefore, assuming a constant exchange rate, the deposit is 3,000 USD only on exchange. you will immediately lose UAH 1,500.
Having chosen UAH deposits, you do not need to follow the exchange rate and visit a branch or conduct banking operations to buy this currency. Understanding the additional hassle, many Ukrainians prefer UAH deposits. A deposit in UAH allows you to withdraw savings in the form in which you deposited them in the account, without the need to worry about exchange rates or exchange.
In the case of emergency situations, there is a lower probability of restrictions on withdrawals and settlements in national currency than in foreign currency. This should also be taken into account when deciding in which currency to open a deposit.