Slovaks have a record billions of euros deposited in banks. What is the current rapid rise in prices doing with them? – PRAVDA.sk

On the occasion of World Savings Day, which is 31 October, 365 the bank took a closer look at how household deposits in banks are evolving and how savings are affected by inflation. The faster the growth of consumer prices, the more it cuts from savings. In addition, the topic of savings is more than relevant these days, as the corona crisis has shown how important it is to create a reserve for worse times. The data come from NBS statistics.

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10/29/2021 5:23 PM

“Our residents have a total of about 42.5 billion deposited in banks. EUR (as at the end of September 2021). However, up to 60 percent of this is money deposited in current accounts, which is in the amount of 25.5 billion. Eur. Deposits with agreed maturity, ie term deposits, amounted to approximately CZK 8.8 billion as of 9/2021. EUR and from the total volume of deposits thus accounted for about 21 percent. And deposits redeemable at notice, which also include passbooks, amounted to 2.4 billion. Euros and accounted for 6 percent of the population’s deposits in banks, “said Jana Glasová, an analyst at 365 banks.

Compared to the period before the crisis (January 2020), the volume of money in current accounts with banks increased by up to 27 percent. Term deposits, on the other hand, fell by about -13 percent and time deposits redeemable at around -9 percent, Glasová adds.

Why is that so?

Market interest rates are low, and this applies not only to mortgages but also to deposits. Because of this, people often keep money only in current accounts and term deposits do not attract them much. The crisis seems to have added a hand to the work, motivating people to keep money in current accounts, so to speak, “for sure” and to have it available. So the amount of money held in current accounts is growing. Conversely, time deposits or deposits redeemable at notice are declining as people move money from these accounts to mutual funds due to low rates, where their money is better valued.

What kind of inflation are we achieving today and why is it rising?

Inflation is accelerating significantly this year, reaching year-on-year growth of up to 4.6 percent in September. So we are currently achieving the highest price growth in the last almost 10 years. The raw material crisis in the world has a significant impact on the growth of prices of goods and services, which is making production inputs more expensive – from chips, through plastics, metals, sheets, paper to building materials and agro-commodities. The rise in September inflation in our country was significantly affected mainly by more expensive food, but also by higher oil prices, restaurant prices and, most recently, more expensive school meals, as the state changed the system of financing lunches at schools. And we can’t forget about more expensive housing and tobacco products. Informs Glasová.

What effect does inflation have on our savings?

“Of course, high inflation does not please our wallets, as it also affects our wages, pensions and savings. It reduces the purchasing power of money in the future, ie what we will be able to buy for our savings. Of course, the higher the inflation in the country, the more of our savings are cut off, “says the analyst.

He also gives an example: If we have savings of, for example, EUR 1,000 deposited at home “under a pillow” or in a current account, then they do not earn us money and are not valued in any way. On the contrary, due to inflation, these savings are devalued as our purchasing power decreases. This year, according to 365 banks, we can expect average inflation at around 3 percent, which means that the real value of our savings of 1,000 euros will be about 970 euros a year. We can mitigate the negative impact of inflation on savings by not leaving savings at home or in current accounts, but rather investing them in mutual funds, for example, where our money will also be valued.

Read more World Savings Day. How are Slovaks doing?

And how does inflation affect debt and mortgages?

Of course, inflation affects not only our savings but also our debts. Inflation favors borrowers and disadvantages creditors. “When we put it on the mortgage market, it means that inflation is beneficial for those who buy real estate on a mortgage. This is due to the fact that the loan repayment decreases over time due to inflation, as inflation reduces the value of money. Thus, the value of borrowed money, which we will have to repay to the bank in 20 years, for example, is also declining, “Glasová notes.” that the borrower will return less money to the bank after deducting inflation than he borrowed. “