Banks and cooperatives offer higher interest rates to depositors to encourage savings, which had slowed down.
The interest rates paid by financial institutions to savers are rising, and in December 2022 they reached a record rate that had not been seen since November 2020.
The average or referential annual interest rate for term deposits is 6.35% in December 2022.
The returns that savers can receive for their money range from 4.9% per year to 8.4% per year, depending on the term of the policy.
Customers who make longer-term deposits receive more interest on their money: deposits for one year or more reached an average interest rate of 8.4% per year, in December 2022.
Why did rates go up?
Banks and cooperatives are increasing interest rates for depositors because they need to encourage savings, says David Castellanos, a professor at the Simón Bolívar Andean University.
Castellanos explains that savings have lost momentum in 2022, because Ecuadorian households have less income in a year of rising inflation and because of the slow recovery of employment.
In addition, in 2021 there was more liquidity circulating in the economy because the International Monetary Fund (IMF) made more disbursements of resources to Ecuador, within the framework of a credit program, adds Castellanos.
Deposits grew at an annual rate of between 10% and 14% in 2021, when people had more savings capacity.
But the trend is reversing, as household spending has increased, and their income has not improved.
Deposits only grew 6% annually in November 2022, the lowest level of the year.
Credit restriction
It is too expensive for banks and cooperatives to request financing abroad and use that money to place loans in Ecuador, due to the increase in interest rates in the United States.
Another factor that makes access to foreign financing more expensive is the increase in Ecuador’s country risk.
With the country risk at 1,364 points as of December 7th, private entities and the Government would have to pay an annual rate of 15% to take loans abroad.
For all this, the placement of credit for companies is slowing down, according to the Association of Private Banks of Ecuador (Asobanca).
So, it is a priority for bank and cooperatives to attract more deposits to have enough money to lend in Ecuador.
Who pays more?
Cooperatives tend to pay the highest interest rates to depositors. But the greater the profit, the greater the risk assumed by the saver.
The average yield paid by these institutions was 7.8% per year in October 2022.
However, there were cooperatives that paid up to 13.4% annual interest.
Meanwhile, in banks, the highest interest rate was 9.7% per year.
To increase saving have the government protect more than $32K in savings— try at least $50K