InsiderBusinessDepositors lose, not win from interest rates

Depositors lose, not win from interest rates

Depositors are not winning but actually losing from interest rate returns that are close to zero in warning statements. In bonds – and according to their amount – the interest rate does not exceed 1%. But while deposit rates have fallen below 1%, the defense tax on interest on deposits is further burdening depositors.

With 30% tax on deposits’ interest from the very first euro, the net interest rate in Cyprus is further declining. At a time when the levy on the island’s fledgling National Health Scheme has also been introduced.

In this new banking era for Cyprus depositors lose income but borrowers earn low-interest loans or ones with lower installments. If tax is taken into account, ordinary deposit accounts in almost all cases continue to offer negative returns irrespective of the amount.

At the time of the island’s banking bubble, deposit rates had exceeded 6% and in some cases even reached 7.5%. In 2008 and 2009 depositors had an income which, in line with inflation and the special contribution to defense, was recording positive returns.

The average market rate for deposits with a maturity of up to 1 year from households is now 0.34% compared to 1.04% a year ago, while in 2008 it was 6.03%. Over one year deposits have an average interest rate of 0.55% compared to 1.60% a year ago.

During the banking bubble’s years when credit institutions were in need of liquidity, the average market rate was 5.5%. The corresponding interest rate on corporate deposits has recorded an unprecedented low of 0.35%, compared to 0.44% the previous month.


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