Cooperatives pay up to 13% interest on time deposits in Ecuador

Time deposits are growing investments in the country because the yields paid by the institutions of the financial system are on the rise, and the highest interest rates have been recorded since at least January 2015.

Time deposits in banks increased from USD 11,910.54 million in September 2019 to USD 19,713.10 million in the same month this year, an increase of 65.5%.

The increase is greater in savings and credit cooperatives, where these investments increased from $6,738.26 million in September 2019 to $14,318.31 million in the same month of this year, which implies a growth of 112.5 percent.

There are savings and credit cooperatives that pay (passive) interest of more than 12% on time deposits from 1 to 360 days, according to data from the Datalab system of the Association of Private Banks of Ecuador.

If a total of $1,000 is invested, a total of $120 would be earned as interest after the agreed term if the reference passive interest rate of 12% is applied.

Economic analyst Santiago Camino indicates that the increase in passive interest (the one applied to term deposits) is increasing due to the country’s inability to obtain cheap financing on the world market.

“Banks have to put depositors’ money to earn interest, which is used to make loans. But two years and a little before the death of the cross, the country’s risk increased sharply, this implies an increase in the interest rate that international banks apply when they lend to the Ecuadorian market, it is between 12% and 14%,” he assures. Put .

So, in practice, it costs financial institutions as much to ask for money from an international bank as it does to get time deposits from depositors.

There are two cooperatives that offer an interest rate of more than 13% if the money remains deposited for 361 days or more, i.e. one year.

These are Solidarity Integration and Líderes del Progreso, which since September have been paying interest of 13.48% and 13.24% for holding term deposits of 361 days or more.

The seat of both is in the canton of Salcedo, in the province of Cotopaxi. The website of the Solidarity Integration cooperative promotes that the refund can be paid at the end of the term or in monthly installments as long as the investment capital is frozen.

The weighted passive rate on term deposits paid out by the financial system (banks, cooperatives and finance companies) reached 9.12% last September in terms of one year or more, the highest since at least January 2015.

The same happens with deposits from 30 to 60 days (6.40%), from 61 to 90 days (7.13%), from 91 to 120 days (6.95%), from 121 to 180 days (7, 75%) and from 181 to 360 days (7.73%) ).

In the case of private banks, those that pay higher interest are Amibank (10.53%), D-MIRO (10.03%), Capital (8.98%) and Pichincha (8.96%) for a term of 361 days or . more than last September.

What should be taken into account when investing in a term policy?

Experts point out that one should always pay attention to factors such as the risk rating of the financial institution. National and solidarity economy cooperatives are larger than medium and large banks.

“The cooperative does not work according to the same regulations as national banks, different standards make them somewhat riskier than traditional banking. This risk leads institutions of the popular and solidarity economy to offer a higher interest rate because risk and profitability are linked. The higher the profitability, the higher the risk“, says Camino.

Another consideration is that the deposit insurance in place in the country’s financial system only matches up to $30,000. “If the bank or cooperative fails tomorrow, the insurance will respond up to that value. I can have $200,000, if nothing happens, I earn interest generated by my frozen amount, but if it goes bankrupt, it will only compensate up to $30,000, if the deposit is less than that limit, you get the total amount you had, “says the expert.

Although it is highly unlikely that any bank or cooperative will fail under the current circumstances. “The Ecuadorian financial system is solid, it has liquidity, there are certain credit limits, but not in amount but in kind. This is due to the high external financing rates that local banks have to cover.”

Almost 80% of time deposits are frozen for a period of 31 to 360 days in both banks and cooperatives.

When investing, it must be verified that the cooperative is legally established and regulated by the National and Solidarity Economy Supervision.

On this link, the Bank Administration publishes the risk assessment of all financial institutions under its regulatory framework.

In the case of cooperatives, there is also their risk assessment on the website of the Main Office for National and Solidarity Economy.

Former economy minister Fausto Ortiz indicates that cooperatives have to fight a little more to maintain deposits and secure them in the long term, since their financing is consumer loans and microcredits. Therefore, they set higher and more attractive interest rates than banks in order to capture deposits.

When investing, you must always take into account the possibility of placing and freezing the amount in different time periods and in different financial institutions. “Don’t put all your eggs in one basket,” advises Ortiz.