Ecuador’s interest rates for savers have sharply declined in late 2024, with further reductions expected in 2025 due to economic factors.

Interest rates for savers in Ecuador have been in a downward spiral since mid-2024, after reaching a peak earlier in the year. The record-high rates of 8.5% in June 2024 for term deposits are now giving way to lower returns, as both private banks and cooperatives adjust their offers. As 2025 looms, many wonder: will these rates continue to drop, or is a rise on the horizon?

Highs and Lows of 2024’s Interest Rate Cycle

Ecuador’s financial landscape in 2024 saw an impressive climb in interest rates, with private banks offering an 8.5% annual rate for term savings in mid-year. This was the highest return since 2007, a period marked by increased global financial volatility. But by November 2024, the rate had plummeted to 6.84%, the lowest level since June 2023.

This shift comes after a two-year period where savings rates steadily increased, particularly in 2023. The sharp decline in rates toward the end of 2024 signals the end of what many had dubbed the “high-rate war” between banks and cooperatives. For Ecuadorian savers, these fluctuating rates have been a critical part of their financial decisions, offering an ever-changing landscape of opportunities and risks.

The Divergent Paths of Banks and Cooperatives

While both private banks and cooperatives saw rates surge in 2023, the dynamics between these two financial sectors diverged. Initially, cooperatives offered higher returns, but by 2024, private banks were leading the way. From a modest range of 4.1% to 6.2% in 2022, private banks’ rates ballooned to 8.5% by June 2024. This sharp rise was driven by increased competition for depositors’ money, necessary to fuel loans amid rising external borrowing costs.

On the other hand, cooperatives saw a more tempered increase. Starting in 2022 with an average of 7.5%, cooperative rates did not spike as dramatically as those of private banks. By August 2024, the highest cooperative rate reached 8.4%, but this too started to decline, with November seeing an average of 8.1%.

Factors Behind the Decline

Several key factors have contributed to the recent drop in interest rates. One significant influence has been the U.S. Federal Reserve’s shift in policy. After aggressively raising rates to combat inflation, the Fed began cutting rates in 2024. This change is expected to continue into 2025, which will likely make it cheaper for Ecuadorian banks to obtain funds from international markets, reducing their reliance on high local rates to attract depositors.

Economist David Castellanos from the Universidad Andina Simón Bolívar explains that U.S. rate cuts have reversed some of the upward pressure on Ecuador’s rates. With cheaper international funding on the horizon, Ecuadorian banks are expected to reduce the interest they pay on savings deposits, especially as the demand for credit remains subdued.

Economic Recession and Low Credit Demand

Another factor influencing the rate decline is Ecuador’s ongoing economic recession. As 2024 saw a slowdown in consumption and credit, private banks no longer felt the same urgency to offer high interest rates to attract deposits. With less borrowing demand and a tight economic situation, the liquidity needs of these banks have softened, further supporting lower interest rates.

The situation for cooperatives is somewhat different. While they have also faced lower demand for loans, their business model is less reliant on external financing, meaning they may not need to adjust rates as quickly as private banks. Still, even cooperatives are expected to lower their rates, though at a more gradual pace.

What’s Next for 2025?

Looking ahead to 2025, Castellanos predicts that interest rates will continue to decline, particularly in private banks, which will likely see faster reductions. He forecasts rates could drop to as low as 6.1% in the first quarter of the year. The major drivers of this trend will be the continued easing of U.S. rates and the lackluster demand for credit within Ecuador.

In this context, savers in Ecuador should prepare for even lower returns on their term deposits. However, the shift in economic conditions, especially in an election year, means that there could still be unforeseen developments in both credit demand and international financial policies.

While cooperatives may experience less drastic reductions, the overall trend is clear: interest rates in Ecuador will likely fall further in 2025, signaling the end of the high-rate boom that characterized the previous few years.