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
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.
- Convenience of the process – ease of opening a deposit and withdrawing funds.
In addition to the mentioned factors, it is important to determine the purpose of placing a deposit, as target priorities also influence the choice of the optimal deposit currency. Below, we will examine 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.
As of December 12, 2024, the average interest rate on 12-month deposits for individuals among the top 20 banks by deposit volume is 12.46% p. a. in hryvnia, while in U.S. dollars, it is only 1.1%. Furthermore, on December 12, 2024, the National Bank raised the key policy rate from 13% to 13.5%, which is likely to contribute to an increase in bank deposit rates.
Currently, it can be confidently stated that the yield on hryvnia deposits exceeds the inflation rate. By the end of 2024, inflation is expected to be 9.7%, but it is forecasted to decline to 6.9% in 2025 and to 5% in 2026.
Thus, if you place funds today for one year at an average rate of 12.46% p. a., in 2025, you will not only preserve your savings from depreciation but also earn an additional 5.56% p. a.. Moreover, if you open a hryvnia deposit at Agroprosperis Bank at 15%, you will receive an 8.1% return.
For comparison, a deposit in U.S. dollars will yield just over 1% p. a., not accounting for the depreciation of the dollar. These figures provide a clear answer to the question of which deposit is more profitable.
Devaluation risk
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 8 UAH/USD. up to UAH 41/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 November 30, 2024, according to the National Bank of Ukraine, the average weighted cash sale rate of the U.S. dollar was 37.4998 UAH/USD, and for 100,000 UAH, you could buy 2,666.68 USD. By placing these funds on deposit, you would have received 2,668.15 USD, including the paid income. Selling these dollars in a year on November 30, 2024, at a rate of 41.4914 UAH/USD, you would receive 111,535.11 UAH. Thus, on 100,000 UAH, you would have earned 11,535.11 UAH.
What if, on November 30, 2023, you decided to place these 100,000 UAH on a deposit in hryvnia at Agroprosperis Bank for 12 months at an annual rate of 17.25%? In that case, you would have earned 13,886.25 UAH net income after taxes in a year. With 113,886.25 UAH, you could have purchased 2,720.63 USD on November 30, 2024, which is 53.95 USD more than if you had bought dollars a year earlier.
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 online 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.
It is important to remember that in the event of a bank being declared insolvent, the Deposit Guarantee Fund reimburses funds placed in foreign currency at the official exchange rate of the National Bank of Ukraine. However, this rate is usually lower than the market rate, which may result in additional losses for the depositor.
In crisis situations, the national currency has a certain advantage — the likelihood of restrictions on cash withdrawals and transactions in the national currency is significantly lower than for foreign currencies. This should also be taken into account when deciding in which currency to open a deposit.
Purpose of placing a deposit
To make the right decision on which currency to use for a deposit, it is important to understand the purpose of your savings. The main goals that deposits typically serve can be outlined as follows:
- Earning additional income. If your goal is to generate additional monthly income for current expenses, the most beneficial option would be a deposit in hryvnia. This currency provides the highest yield and is convenient for everyday transactions.
- Short-term savings. If you are saving for a major purchase, such as a new car, an apartment in a newly built property, university tuition, travel, etc., it is advisable to save in the currency in which you will make the purchase. However, if you earn your income in hryvnia but plan to make the purchase in U.S. dollars, it would be reasonable to divide your funds and save in both currencies.
- Long-term savings. For long-term savings, such as securing a comfortable retirement or achieving early retirement, it is advisable to choose stable currencies like U.S. dollars or euros, which maintain their purchasing power over decades.
It is important to remember that exchange rates can fluctuate in the short term, both positively and negatively, and it is impossible to predict the most advantageous option in advance. Therefore, the key criterion for selecting a deposit currency should be your financial goal.
To further protect your savings from inflationary and devaluation risks, a prudent approach would be to diversify your deposit portfolio by keeping part of your funds in hryvnia and part in foreign currencies such as dollars or euros. For instance, you might allocate two-thirds of your funds in hryvnia and one-third in foreign currencies. However, the optimal proportion should be determined individually based on your specific needs and plans.
