Deposit rates rise, but most savings remain in current accounts

Interest rates on deposits at Estonian commercial banks are rising alongside Euribor, but most savings remain in current accounts, ERR reports. Banks expect deposit rates to keep increasing in the near future.

The average interest rate on term deposits was 2.1% in August, up from 2.05% the previous month and 1.97% a year earlier. Rates on one-year deposits have reached around 2.5%.

Taavi Raudsaar, an economist at Eesti Pank, said banks were raising rates to attract deposits as market interest rates increase. Banks need the funds to extend more loans, he said.

Raudsaar said deposit rates could rise further over the next couple of years, as forecasts for Euribor point upwards. Term deposit rates depend significantly on Euribor, he added.

Swedbank has raised deposit rates three times this year. It currently offers 2.5% on a 12-month term deposit and 1.75% on its Rahakoguja savings product for customers who want to keep their money accessible. SEB also offers 2.5% on a one-year term deposit.

Deposits in Estonia have grown by one billion euros, or 7.5%, over the past year, according to Eesti Pank statistics. Elisabet Visnapuu, head of savings and investment at SEB, said higher interest rates and the removal of the tax hump had contributed to the increase. Rising net wages and economic uncertainty have also encouraged people to build a financial buffer, she said.

However, Swedbank’s head of retail banking, Tarmo Ulla, said household deposits were unevenly distributed. While deposits have grown as wages have risen and people have changed their spending habits, 72% of the bank’s customers still live from payday to payday, he said.