There is a category of clients that causes quiet envy among bank branch employees. A person comes, smiles pleasantly, silently receives interest on the deposit – and leaves. No complaints, no problems. And in their account – millions. And these millions work. They bring, say, 100 thousand hryvnias every month. Clean, calm money, informs Ukr.Media.
And here, the young specialist involuntarily thinks: “What if I put the money on deposit? And just live off the interest?”
The numbers in this game of illusions very quickly bring to mind. Because if you want to receive 100 thousand per month, then at an average rate of 12% per annum you will have to deposit about ten million hryvnias into the account. 100,000 / 12 × 12 × 100 = 10,000,000 UAH. And this is without taking into account taxes, which will eat up almost a quarter of the profit – 23% (18% personal income tax plus 5% military duty). As a result, you will receive not 100 thousand, but 77.
But even if you have money, it’s still not that simple. Bank deposits seem like a safe haven: the state guarantees compensation of up to 600 thousand hryvnias for each deposit, and if you correctly divide the amount into different banks, you can reduce the risks to almost zero. But… inflation is not sleeping. What is called “reliable income” today turns into a sluggish handout in a few years, which does not even cover the inflationary growth of prices.
Let's imagine: you opened a deposit for 1 million hryvnias for 5 years at 12% per annum. This sounds like a reliable investment – 92 thousand profit every year. But what if prices double in these five years, as has happened repeatedly? Your profit will depreciate before you have time to enjoy it. Real inflation in the country often significantly exceeds the official figures. In a hryvnia deposit, this simply means losing part of your purchasing power every month.
Let's look at it without embellishment. Five years ago, in 2020, the dollar was worth about 24 hryvnias. That is, a million hryvnias on deposit then was equal to 41,600 dollars. Today, when the exchange rate is already 41, this same million is only 23,000 dollars. It seems that over these years you received 600 thousand hryvnias from interest, but after taxes you have about 460 thousand left – this is about 11 thousand dollars. As a result: you had 41 thousand, you received 23 + 11, that is, you lost more than 7 thousand dollars. And this is without taking into account inflation. So what is this? An investment? No. It is a loss wrapped in a piece of paper of “reliable income.”
Okay, you might say, there's a war going on in the country right now, the economy is unstable, so the hryvnia is depreciating. But let's look at another period. For example, 2015 — the dollar exchange rate was about 16 hryvnias at the time. That is, a million hryvnias on deposit was equal to 62,500 dollars. Five years have passed — it's already 2020, and the exchange rate has grown to 24. That same million has become the equivalent of only 41,600 dollars. It seems like you earned 600,000 hryvnias in interest in five years. After taxes, you have about 460,000 left — that's about 19,000 dollars. Total: there was 62,500, it became 41,600 + 19,000 = 60,600. Minus almost two thousand dollars. The deposit ate up the interest — quietly, without panic, simply because of the devaluation.
Foreign currency looks more attractive against this background. Yes, the rates are much lower — about 1.5% per annum in dollars, but the stability is also higher. At least conditionally. Because here too, the profit does not cover inflation. If the average inflation in the USA is 2.5%, and the bank pays 1.4% per annum, then your deposit loses value even without currency risk.
Deposits are good when you have a significant amount that you want to save, not increase. This is not income, it is a convenient temporary shelter for capital. But if you dream of a life of a rentier, where money works for you, and you are on the beach with lemonade – a bank deposit will be a cold shower for you.
