The economic crisis has led to many adverse phenomena in global economies. One of the signs of the economic slowdown are lower profits on bank deposits. Since remembered 2008, interest rates on bank deposits still do not want to rise from their knees. However, 2014 may fill us with some optimism.
What’s more, a completely new phenomenon has emerged that we have not yet faced. I am talking about deflation. To understand this phenomenon, it is worth remembering what inflation is.
Deflation is the reverse of inflation. Inflation is a rise in commodity prices and a reduction in the purchasing power of money. So when it comes to deflation, prices of goods stand still and even fall. But how does this phenomenon apply to financial products that allow savings – to deposits and savings accounts? Go to the website where to set up cheap deposits.
Deflation and savings
For the average consumer, deflation is more beneficial. For the same amount of money, they can afford to buy more goods or use more services. Many savers use bank deposits to protect their money against inflation. So before the real decline in the value of money.
Deflation should therefore be the most beneficial for our savings. A few years ago, when inflation was at a very high level, it was impossible to earn money on bank deposits. And how is it today with deflation?
It all depends on how the bank in which we have a deposit will react to deflation. One can distinguish a certain phenomenon on the basis of interest rate increases and reductions by the Monetary Policy Council. When, as a result of interest rate increases, bankers’ rates go up better, they gradually introduce better conditions.
Deflation and return on investments
However, when interest rates go down drastically, bank deposit rates drop quickly. On the example of the policy pursued by Polish banks, we can see that the interest rate on bank deposits is falling due to deflation. It is estimated that from September up to 0.1% on an annual basis. One of the largest banks in Poland even reduced the interest rate on a four-month deposit from 4.1% to just 3.4%.
As you can see, deflation does not have a positive effect on the interest rate on deposits. As a result, it is very difficult to make money on bank deposits again. Customers are looking for other ways to invest money. Investment funds are becoming more and more popular. Investments in Treasury Bonds can be considered as a fairly safe alternative to bank deposits. Interest is also growing around alternative investments.