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Friday, June 2, 2023

To Attract Dollars, Banks Hiking CD Rates

Though the credit crunch in Costa Rica is being blamed for a host of ills, the situation might have a side benefit: high interest rates for savers.

To retain sufficient liquid assets, banks are tightening their coffers by granting fewer loans at much higher interest rates.

But the flip side is certificate of deposit (CD) rates in the country are also high, ranging from 3.75 to 4.75 percent per annum for six-month terms at most banks, both private and public.

“It’s simply that internal competition for dollars among banks drives the interest rates higher,” Luis Carlos Mora, the head of finance at Banco Nacional said. “We are very conservative in giving credit so the idea is to bring in more dollars (this way).”

By comparison, the Libor interest rate – an approximation of average international interest rates – for a six-month term is currently about 2.8 percent.

While the interest rate also looks high for savings in colones at first glance, inflation – which has reached 16.3 percent year-over-year, the highest in 10 years – is outpacing most savings interest rates.

“Really, it seems more attractive to us to invest in dollars than in colones,” said Eric Vargas, strategy director for the financial advising firm Aldesa. “Bank certificate deposits are a financial instrument that we think is convenient for funds that you want to save at a high level of security.”

Deposits in Costa Rica’s public banks have the full guarantee of the state. Vargas said in case of a real financial emergency, when the Central Bank would have to pump in money to bail out the country’s banks, investments in dollars could be paid back in colones due to a loophole in the country’s regulatory laws. He added that this sort of crisis seems very unlikely to happen, however, at least in the short term.

Many banks offer higher rates on CDs that are invested online. Mora said a sixmonth CD at Banco Nacional, for example, has a 3.8 percent interest rate, but a 4.15 percent yield if you invest online.

–Elizabeth Goodwin



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