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Term deposit rates dropping in Estonia

Bank headquarters in Tallinn.
Bank headquarters in Tallinn. Source: Siim Lõvi /ERR

In anticipation of a decrease in the Euro Interbank Offered Rate (Euribor), Estonian banks have started to lower the interest rates on term deposits. Interestingly, Swedbank offers a better interest rate for shorter deposits compared to longer ones.

Last autumn, banks operating in Estonia raised the interest rates on offered deposits to levels that had not been seen for a very long time. Several banks offered a risk-free 5 percent return for one-year deposits. However, the situation has now changed.

Several banks have, for instance, reduced the interest rate offered for one-year deposits to below 4.5 percent. SEB, for example, estimates that interest rates will not start rising again.

"The interest rates on term deposits have probably reached their peak and are expected to be on a downward trend before stabilizing," Ainar Leppänen, head of retail banking at SEB, told ERR.

12-month deposit rates of Estonian banks in October 2023 compared to January 2024:

LHV said that in addition to market expectations, they also price their deposits based on their own need for funds.

"The liquidity level of LHV is high, and the money markets also expect that interest rates will significantly decrease this year. According to forecasts, the six-month Euribor could reach around 3 percent by the end of June, which is why we have adjusted the interest rates for longer deposit periods against the market trend," noted Juhan Peet, head of treasury at LHV.

"Depositors should consider that interest rates are unlikely to rise in the foreseeable future. Therefore, choosing between longer deposit periods to maximize benefits from the current environment is advisable," added Peet.

Meanwhile, banks have started to offer higher interest rates for shorter periods. In some cases, the interest rate for 12 months is as high as what is offered for six months. For instance, Swedbank is offering even higher interest rates for shorter periods than for longer ones.

Term deposit rates offered by banks in Estonia:

"The higher interest rate for shorter periods reflects the market expectation that interest rates will start to decline soon. Therefore, we currently offer higher interest rates for shorter deposit periods compared to longer ones. This means that it's a good opportunity for those who cannot or do not wish to place their money in long-term deposits," said Tarmo Ulla, head of retail banking at Swedbank.

Swedbank also reported that, following the trend of high interest rates in Estonia, there has been a significant increase in people's interest in keeping their money in term deposits.

"For example, in 2022, Swedbank had a total of 19,600 term deposits from retail clients, but in 2023, this number rose to nearly 146,000. The volumes of deposits also increased dramatically: while in 2022, retail clients deposited a total of €919 million, in 2023, they placed nearly €3.1 billion in term deposits at Swedbank," noted Ulla.

The European Central Bank (ECB) started raising interest rates in 2022 to combat rising prices. The ECB last raised interest rates on September 20 of the previous year.

Eurozone inflation in December was 2.9 percent according to Eurostat's rapid estimate, which is 0.5 percentage points higher than in November. The ECB's target inflation rate is 2 percent.

Euribor has fallen slightly from its recent peak and was at 3.891 percent as of January 9.


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Editor: Huko Aaspõllu, Marcus Turovski

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