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Significance of Household Deposits – Dinar Savings More Profitable than FX

Ahead of the World Savings Day, marked on the last day of October, the NBS wishes to underline once again the significance of household savings. Namely, household deposits, together with deposits of other sectors, constitute the most important source of financing of economic growth. As the level and growth of savings are greatly affected by macroeconomic environment, the NBS strives to maintain price and financial stability. Over the past six years significant results have been achieved in this respect – inflation has been reduced and maintained at a low level and the relative stability of the RSD/EUR exchange rate has been achieved and sustained.

Once again the NBS underscores that saving in dinars is more profitable than saving in foreign currency – both in the short and long run. By conducting regular analyses of the profitability of savings, whose results indicate higher profitability of dinar deposits, the NBS continues to promote saving in the domestic currency as one of the avenues for increasing the degree of dinarisation of the Serbian financial system. Higher profitability of dinar savings is attributable to:

  • relatively higher interest rates on dinar than on euro savings,
  • the achieved and maintained monetary and financial stability (relative stability of the RSD/EUR exchange rate and low and stable inflation over an extended period of time), and
  • more favourable tax treatment of dinar (non-taxable interest income) relative to FX savings (15% tax on interest income).

Even though interest rates on household savings deposits have declined over the past several years (within the process of monetary policy easing implemented by central banks worldwide and by the NBS), both dinar and FX savings recorded an increase, indicating stronger confidence in the domestic financial system.

Household dinar savings tripled over the past six years. Based on the latest available data, the volume of dinar savings held with Serbian banks shot past RSD 57 bn in October 2018. In 2018 alone, they increased by over 14%, driven mainly by the 6m-1y term deposits. This only goes to show that the analyses of greater profitability of dinar vs. FX savings, conducted by the NBS and clearly communicated to the public, yielded the desired effect in terms of bolstering citizens’ confidence and encouraging them to increase their term dinar deposits.

Household savings in foreign currency are also increasing every year. According to the latest available data they amount to around EUR 9.8 bn, up by EUR 0.4 bn relative to end-2017.

As in the years before, ahead of the World Savings Day, the NBS prepared an analysis of savings profitability, confirming once again that it is more lucrative to save in the local currency.

The analysis of profitability of dinar vs. euro savings shows that a person saving in dinars in the past year (RSD 100,000 deposit) would receive around RSD 3,000 (or around EUR 26) more than a person who saved in euros (equivalent of RSD 100,000) in the same period (Table 1), primarily owing to almost six times higher interest rate on dinar compared to euro savings, non-taxable interest income on dinar savings and relatively stable exchange rate of the dinar.

We emphasise that saving in dinars does not pay off better on shorter terms only. Saving in dinars pays off better than saving in euros on both longer (six years) and shorter terms (three months). Namely, the analysis of the profitability of savings deposited for a one-year term, with the assumption of deposit rollover plus interest, shows that it has been more lucrative to save in dinars in the past six years, i.e. in the long term. The analysis of profitability of savings deposited for three months also suggests that saving in the domestic currency has been more profitable.

As so far, through its measures, activities and communication with the public, the NBS, in cooperation with the Serbian Government, will continue to contribute to the process of dinarisation (greater use of the dinar) of the domestic financial system, and thus to further growth, primarily of dinar savings.

Governor’s Office