With SELIC in Decline, Interest on Savings Accounts Will Soon Be Less than Inflation

RIO DE JANEIRO, BRAZIL – This may occur because savings yields are 70 percent of the SELIC, plus the Reference Rate (TR), which is zero.

Currently, the SELIC stands at 5.0 percent per year and the Central Bank has already signaled that the rate should drop in December to 4.5 percent per year and close 2020 at this level. As a result, savings yields will increase from 3.5 to 3.15 percent per year.

Inflation, calculated by the Broad National Consumer Price Index (IPCA), should close 2019 at 3.31 percent and 2020 at 3.60 percent, according to financial market estimates.

Considering the monthly forecast, inflation should reach 0.36 percent in November and 0.35 percent in December, while savings will yield 0.29 percent per month, with the SELIC at five percent, and 0.26 percent per month, if the basic rate were to drop to 4.5 percent per year.

Investors who have old savings and have not withdrawn the funds earn higher yields. That is because all deposits made up to May 3rd, 2012 yield 0.5 percent per month (or 6.17 percent per year), plus TR.

As of May 4th, 2012, the new savings calculation rule became 70 percent of the SELIC plus TR, whenever the rate is below or equal to 8.5 percent per year. Above 8,5 percent per year, the income is 0.5 percent per month plus TR.

The CEO of Studies and Economic Research of the National Association of Finance, Administration and Accounting Executives (ANEFAC), Miguel José Ribeiro de Oliveira, says that this new reality of savings yielding little is here to stay.

“It is a reality because interest rates will remain low. They will drop again in December, possibly to 4.5 percent a year. This means that savings will yield 3.15 percent a year. And it’s already starting to be a problem because this income should be lower than inflation,” he said.

“We are going to go through what happened in the United States and in Europe here in Brazil. In these economies, interest rates were high. People invested in fixed income. There were guaranteed and high investments. But the interest rates were dropping and then the situation reverted – most Americans and Europeans currently invest in the stock market. We are going to experience this scenario in Brazil – those who want greater profitability will have to take risks,” he said.

Oliveira advises those choosing to invest in stocks and have no knowledge of the financial market to seek stock funds.

“There are two ways to invest in the stock market. One of them is to invest directly in stocks of a company. This kind of choice should only be made by more knowledgeable people. For beginners, the best alternative is to invest in stock funds. Because there are managers who know the best stock to buy and they will distribute the portfolio to minimize the risks. They will choose several types of companies, such as financial, banking, retail, energy,” he said.

Should one not be willing to take risks or intend to make an emergency reserve, analyzing the administration fees of fixed income funds is recommended.

According to Oliveira, with the SELIC decreasing, the trend is for financial institutions to reduce management fees to attract more customers. Another option is to analyze Direct Treasury bonds, such as the Treasury SELIC. Investors may also consider other investment options available in the market.

Investments in funds and in the Direct Treasury are subject to Income Tax, in addition to administration fees, which should be assessed by anyone deciding to invest.

Effects on the economy

Oliveira points out that lower savings yields can have consequences not only for the savers’ purse but also for the country’s economy. “Since leaving money in savings will not even preserve purchasing power, it can lead people to stop saving and allocate money for consumption,” he said.

Another factor is the reduction of resources for home financing. Currently, 65 percent of savings resources are used for home financing.

Source: Agência Brasil

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