Chairman of the Management Board of AS Expobank Rolands Legzdiņš
The pandemic and the restrictions caused by it, which affected revenues for part of society, have demonstrated the importance of savings for both individuals and businesses. However, when making savings, it is essential to assess what level of risk the person is willing to take. This should be done at the very beginning. The next step is the choice of the bank and the conditions it offers. If depositors deposit their savings in banks that finance the development of local Latvian companies, namely, after careful analysis of the project, lend funds to their implementers, the invested money provides added value for the company and the country as a whole in the long term. It is also worth comparing the solutions offered to make the stored money earn and not to generate additional costs.
The choice of risk level can be compared to the first attempts of children in cycling – in the beginning, additional wheels, which guarantee safety, are always connected to the bicycle. In the banking sector, a bicycle with safety wheels is a term deposit – it entails low-risk and therefore low reward, but at the same time a high level of security. When skills have been learned, the child will start driving faster and the wheels will be removed. In the end, skills may develop so far that the child can start trying various manoeuvres. The same may happen with making savings – starting with term deposits and later investing, for example, in shares.
As savings volumes grow, a number of European banks have started charging customers for storing their money in banks, i.e. if the customer’s funds are in a current account, they have to pay for it. When depositing this money in a normal term deposit, the customer not only saves these potential costs but also earns because, depending on the nature of the bank’s activity and the time of the investment, the banks are willing to pay for the service. So, “kill two birds with a stone” — save and earn.
Savings volumes of households and companies are also growing in Latvia – the data collected by the Finance Latvia Association shows that at the end of March 2021 the total amount of deposits in Latvian banks exceeded 19 billion euros (term deposits account for 13% of the total amount of deposits). Banks should pay for their storage when storing funds in the national central banks (in the case of Latvia it is the Bank of Latvia). So in Europe and elsewhere in the world, many banks apply commission fees for higher amounts of money in an account. Such practices are also being pursued by individual banks in Latvia. All of this will make customers think more about deposits with a positive rate. It may already be the right time to place your free funds in banks that pay customers for this money, and customers do not have to change their habits completely – the customers will keep receiving all services in their main bank as before. But at the same time, free funds will earn rather than be consumed by commission fees.
Many small banks have made significant changes to their business models in recent years to find their place in the market and develop their specific niche. To be noted, significant changes have also been made to banks’ internal control systems. Banks have been working on improving service quality by developing and integrating different FinTech solutions. In the case of Expobank, it is the SmartDeposit that allows for fully automated and remote placement of term deposits. Such solutions will become more and more popular in the future, facilitating everybody’s daily lives.
When choosing a bank, customers are interested not only in the interest rate but also in security and stability of the bank. One of the indicators reflecting the financial stability of the bank is liquidity, namely the ability of the bank to meet its obligations towards customers. Thinking about financial security, banks are carefully evaluating and planning incoming and outgoing cash flows. Banks also take decisions in a safe and sound manner, when analysing and evaluating credit applications.
In addition, the guarantee of security and peace of mind for customers is also the Deposit Guarantee Law, which provides that each customer has the right to a guaranteed indemnity of up to 100,000 euros per person if the deposit cannot be accessed. Only depositors who place their funds in the banks participating in the Deposit Guarantee Fund may receive the state-guaranteed indemnity.
When comparing banks to choose the right one, it is useful to focus on the bank’s reputation and management team. If a bank develops and offers innovative solutions to its customers, it provides additional grounds for thinking that it should be chosen. Another important aspect is how banks earn – by investing in lending, transactions in the securities market or other services. Customers should remember that they do not have to choose one bank for all the services. When choosing a specific service, such as a term deposit, it is certainly worth exploring which banks specialise directly in this area, and, when looking for the next service, it is worth to make a comparison again and choose the best offer.
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Head of PR and marketing at AS Expobank