ERA OF MAKING MONEY FROM MONEY IS OVER
- Published:06 Ocak 2011, Perşembe
- Updated:06 Ocak 2011, Perşembe
Interest rates on deposits hit a historic low yesterday dropping to 6.84 percent. According to experts, gone are the days of investing into interest for profit
The shining performance of the public budget coupled with the accelerated drop in inflation has resulted in a record recession of interest rates to start off the new year. In addition, one of the economy's fundamental items, 'benchmark issue interest' reached the lowest level in history yesterday at 6.84 percent.
600 TL INTEREST ON 100,000 TL
Following the Central Bank's interest reduction in December, banks have dropped the annual deposit interest rate down by 1-1.5 points, bringing the figure to below eight percent. When taking into consideration the stoppage, this means that money in hand has dropped to around seven percent net, the lowest level in Turkey's history. Therefore, every 100,000 TL in the bank receives just 600 TL in interest.
Ten years ago, the monthly interest accrued on a 100,000 lira deposit was 4,650 liras, while the minimum wage at that time was just 116 liras. Today, the interest accrued on the same 100,000 liras is just 600 TL, whereas the minimum wage has reached 629 TL. The stabilization of the economy now works to benefit the worker and no longer the earner.
This translates into a nightmare for those investors attempting to survive off of interest accrued on deposits. The era of parking money in one of the world's highest interest-bearing accounts, and not working to earn is over.
THE EXCHANGE RATE ALSO DID NOT CONTIRBUTE TO EARNINGS
Running to utilize the exchange rate is also no longer 'profitable'. Last year, the dollar's earnings remained at 5.7 percent while the euro lost 2.6 percent. Specialists, who are expecting interest rates to drop further, state; "The era of making money from money is over."
THE BOND SITUATION IS EVEN WORSE
For those investors which decided to switch to treasury bonds to escape the dropping interest rates, their situation is even worse. Due to the shining performance of the public budget, the need for the treasury to become indebted has decreased, resulting in a historical drop. Yesterday, the Treasury bond which saw the highest number of transactions broke a record at 6.84 percent annual compound interest. When taxes are subtracted from the figure, net interest equates to 6.15 percent. This in turn means that 100,000 liras invested in a treasury bond will only acquire 6,150 TL annually for its owner, equating to just 513 TL a month. In addition, further drops are anticipated in both deposit and bond interest rates.
After having closed out the year at an annual interest rate of 6.4 percent, which is the lowest seen in the past 41 years, bankers are still expecting the Central Bank to make further reductions. This, for the investor unfortunately, simply means that much less earned from interest.