Deposit or Foreign Currency: When the Dollar or Euro May Prove More Profitable

Despite the challenging security situation, Ukrainians are expected to maintain their interest in hryvnia-denominated savings. This will be supported by the National Bank of Ukraine's tight monetary policy, competition among banks for household funds, an effective deposit guarantee system, and sufficiently high interest rates on term deposits.

This forecast was presented by Dmytro Zamotaiev, Director of the Retail Banking Department at GLOBUS BANK.

The banker paid particular attention to the competition between hryvnia deposits and purchases of foreign currency.

According to him, when comparing these two savings options, it is important to consider not only the potential appreciation of the dollar or euro but also the income that a hryvnia deposit would generate over the same period.

For example, if a person has UAH 100,000 and buys US dollars at a hypothetical selling exchange rate of UAH 45.60/$, they will receive approximately $2,193.

For this transaction to prove more profitable than a three-month hryvnia deposit with a net return of approximately 2.7%, the bank's dollar buying rate would need to exceed approximately UAH 46.83/$ after three months. To outperform a six-month deposit, the corresponding exchange rate threshold would be around UAH 48.15/$, while for a one-year deposit it would be approximately UAH 50.62/$.

The same principle applies to the euro. Assuming an initial selling exchange rate of UAH 50.80/€, purchasing the European currency would outperform the corresponding hryvnia deposits only if the exchange rate at which it could be sold back exceeded approximately UAH 52.17/€ after three months, UAH 53.64/€ after six months, or UAH 56.39/€ after one year.

These figures are purely mathematical benchmarks that do not account for possible additional fees and assume that the foreign currency is simply held without earning interest.

According to the expert, the greatest risks to the attractiveness of hryvnia deposits could arise from a significant acceleration of inflation and a sharp increase in depreciation pressure, causing the hryvnia to lose value faster than the net returns on deposits. However, if the exchange rate remains under a managed flexibility regime and the NBU maintains sufficient activity in the interbank foreign exchange market, these risks may remain manageable.

“Buying foreign currency does not guarantee a profit in itself. To “outperform” a hryvnia deposit, the dollar or euro must appreciate enough to offset the entire net interest income. Moreover, individuals effectively face two exchange rates: they initially buy foreign currency at a higher selling rate and later sell it at the lower buying rate offered by a bank or currency exchange office. Therefore, as long as exchange rate movements remain relatively controlled, hryvnia deposits can remain fully competitive”, — Dmytro Zamotaiev concluded.