Eduardo Arteaga decided at the beginning of 2023 to invest in a fixed-term policy for $2,000 with his trusted bank. He affirms that although the interest rate is lower than what cooperatives can grant, the fast procedure and without paperwork led him to opt for the bank.
He comments that he only entered the apps from the bank and contracted the policy: “Automatically the figure went from my savings to the policy. One can choose whether interest is charged every three, six, nine or twelve months. I didn’t have to leave my house and I saved paperwork. I was also surprised that this year they raised the rate”. He indicates that he has always seen this type of policy as a “safe” and low-risk investment, which is why he always allocates an item annually for this figure.
Is it safe to invest in a fixed term deposit?
However, not only fixed-term policies are used to invest in Ecuador. There are other financial instruments that help us increase our resources. Choosing the most suitable one will depend on the investor’s “appetite” for risk, says Héctor Delgado, an economist.
“Currently, a rather atypical situation is taking place. Banks are paying really high rates for their investments, quite attractive for people looking to invest. Depending on the amount and term, we are talking about rates of 6% and 7% and up. This system has minimal risk”, he points out.
If investors are looking for a much higher return, they should bet on mechanisms such as the stock market. Here are different options on how to invest: “The interest rate does not depend much on the amount invested,” says Delgado.
On the stock market, for example, if you invest in shares of a large and recognized company, the interest is lower compared to a company that is just emerging, explains Carlos Cruz, economist.
“It is understood that corporations have how to respond in the stock market, it is a more controlled risk. If you invest in a company that is not very well known and then it rebounds, then the profit is greater“, it states. Although it recently emerged that a large food company was unable to pay its commitments on the stock market.
But there is the risk that the company does not work or that it takes time to emerge. All this raises or lowers the risk of the investment. In Ecuador there are shares that cost from $0.7 to $2,000 each. The average value of a share in the country does not exceed $45.
A fixed-term policy can generate a return of 5% on average, but that of the Stock market fluctuates between 12% and 14% per year.
Cruz affirms that age is also a key factor when talking about investment. Centennials and millennials (18 to 45 years old) can invest more strongly in the stock market, since they are at the age of maximum economic production of a person. After the age of 45, the person is already beginning to think about retirement, which is why they are more interested in a lower and calculated risk.
In the country there are also the so-called investment funds. These figures accumulate the money of many people to invest in other financial assets such as stocks, bonds or alternative assets. The value of the mutual fund depends on the assets contained in the fund itself. Therefore, the evolution of the fund will depend on the performance of the assets. In Ecuador the interest of the funds is, on average, 8%.
“I prefer to keep money in policies that are less risky than cryptocurrencies,” says a retiree who has term deposits, investments that add up to 28,617 million dollars in savings in Ecuador
Financial institutions also have goal savings schemes where the user can set a target amount of savings for the purchase of a good such as a car or a house, to pay for vacations, a university degree or retirement.
The entity deducts from the account a predetermined amount on a monthly basis and creates a fund to reach that goal and pays interest for this. The amount of interest depends on each entity, the term and the target amount. There are banks that pay an annual interest rate from 2.5%.
Another of the figures that appear is the purchase of euros to later resell them. Currently each euro is at $1,079. However, Cruz indicates, the European currency has been climbing against the dollar and is at its highest level since April 2022: “In Europe inflation is coming down and that makes for a strong euro. Perhaps buying euros last year when it was almost on a par with the dollar was a better deal than today. Although the economic future is still uncertain and the euro may continue to rise”.
Delgado also recommends investing in assets. If the person has enough capital, he can buy houses, apartments, land and then resell them. The houses can even be remodeled to obtain a greater profit. The success of the operation lies in knowing how to buy in sectors whose surplus value will rise over time.
Cryptocurrencies also appear as an investment market. However, Delgado and Cruz agree that they are very risky and highly speculative. “They are figures that depend a lot on supply and demand, and on what may happen in the future.”, notes Delgado.
Experts also believe that the worst thing a person can do is keep their savings. (YO)
Source: Eluniverso
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