Golden time of deposits: will the stock market crash deposit yields?

Russian banks continue to raise their deposit rates. VTB now offers a maximum rate of 24% for a one-year deposit. A similar trend is observed in other credit organizations. The attractiveness of deposits, taking into account inflation, reaches a record for the entire period of observation. Thus, bank deposits are becoming a reliable and practically risk-free investment, which may lead to an outflow of funds from other investment areas, including the stock market, which is popular among Russians. Izvestia investigated whether Russian stock exchanges are in danger of collapse due to the withdrawal of all investors to banks.

Rates continue to grow

According to the Central Bank, in the third decade of October, the average maximum rate in the top 10 Russian banks exceeded 20% for the first time in a long time. Judging by the data coming from individual credit organizations, since then the rates have continued to increase. VTB is not the only example - a whole group of banks offer yields of 22-23% per annum, with ultra-short deposits for three months, which is an unprecedented phenomenon (usually long-term deposits have a higher rate).

The growth rate of funds on deposits of individuals is the highest for 14 years. By October, the volume of their deposits amounted to Br51.6 trillion. And the average deposit size of households reached Br583 thousand, which is 21% more than at the end of last year. The volume is confidently supported by both high rates and growth of household incomes.

In these circumstances, the Russian stock market, which has grown rapidly after the epidemic and withstood all the blows of fate in 2022-2023, looks like a loser. Over the past six months, it has fallen by almost 700 points (more than 20%). To a large extent, Russian securities were supported by private investors, whose number exceeded 30 million people - about a third of the economically active population.

Now, when banks offer such favorable conditions for placing funds, the motivation to invest in the stock market is starting to be lost. In the short term, it brings much lower returns, while investments are accompanied by much higher risks. For comparison, the real (i.e. net of inflation) yield on deposits is now 13-15%. What will happen if the situation continues to develop in the same way? Russian experts have assessed the prospects of the Russian stock market in "golden" conditions for bank depositors.

"Mass sell-offs of shares for the sake of deposits are unlikely to happen"

Elman Mehdiyev, founder of Kredchek service

Yes, the withdrawal of funds to the deposit market already exists and will only intensify as rates rise. But it is unlikely to lead to mass sales for the sake of deposits. Rather, we are talking about "new" money, which comes to banks from the "cans".

Demand for shares will shrink not only because of the decline in the inflow of private funds into this market, but also because not all issuers will be as successful in times of high key rates as in times of low inflation.

Deposits in the current situation "take away bread" not only from stocks and bonds, but also from other financial services (savings insurance, etc.). It makes sense to shift from stocks to deposits if the rate will be as high for at least a year, which the Bank of Russia will in no way guarantee.

"Shares will grow rapidly when the DKP turns around."

Natalia Malykh, Head of Equity Analysis at Finam Financial Group

If there is no global crisis and the corresponding collapse of prices for raw materials, the shares will not collapse. The background is economic growth, expectations on corporate profits for 2024 remain quite high, and forecasts on dividends are not bad - about 10% for the next 12 months on the MosBirch index.

If you compare the deposit only with the div yield, many stocks will of course lose out. But stocks can grow later, and they will grow faster than bonds when the DCP turns around, then the total return on stocks (dividends and exchange rate revaluation) will beat deposit rates. And the face value of the deposit will remain the same. Typically, stocks start rising on expectations of a reversal of the MPC before the CB actually moves to ease, and the rise can be quite rapid. Now there are forecasts of a change in the MPC in the summer of 2025, and there is a realization that rates are close to peaks.

Secondly, deposit yields do not take into account the devaluation factor: the dollar has already grown by 18% since the beginning of August. The lion's share of the MosBirch index are exporters, who benefit from the weakening of the ruble, and sooner or later this factor will be incorporated into quotations.

Next. Interest on the deposit can be received only at the end of the term, but if you close it early, the interest is often equal to zero. Sometimes it happens that private investors see the fall of the ruble, they did not have time to buy currency, and in order to capitalize on this wave, they invest in the shares of exporters, which can move with a time lag. They prefer to take money out of deposits to move it into stocks, albeit at a loss of interest.

"Over the long haul, equities overtake any instrument in terms of profitability."

Ivan Efanov, analyst at Tsifra Broker

A large percentage of people in Russia do not have brokerage accounts, and for them deposits and deposits are the only available instruments for saving money. Of course, risk-free yields are high now, and because of this, stocks are under pressure, because their dividend yields lose out to interest on deposits. But on deposits, you fix this yield for a year, and over the long haul, stocks, due to the growth of the body and reinvestment of dividends, overtake any instrument on our market in terms of yield.

Currently, the multiple P/E (share price to earnings) for the MosBirch index has fallen to 3.8x, which is almost half the historical average. In other words, our stock market is cheap, and this is a normal situation when the key rate is 21%, and the consensus is that this is not the limit.

Given that the market is indeed cheap on value multiples, we see that now is a good time to get into stocks for the long term. It is only a question of time and investors' patience, when the Bank of Russia will start broadcasting "dovish" rhetoric regarding monetary policy, and most of the liquidity from deposits and OFZs will flow into the stock market. Therefore, of course, part of the liquidity has left the stock market for risk-free assets - deposits, but professional investors continue to invest in quality assets right now, in moments of market correction.

"Banks are lying in advertising."

Artur Bedzhanov, Senior Personal Broker of "BKS World of Investments"

Indeed, deposit rates are growing at an active pace. It arouses interest of many people, but not those who understand the background and risks.

Firstly, banks are deceitful in advertising, in fact offering rates at the end of the term, but not in percent per annum. Also, such deposits are often framed by additional conditions, such as mandatory spending on the card. So, let's say, the rate of 24% for three years with payment at the end of the term actually turns into 19.89% per annum, which corresponds to the yield of government bonds, and is significantly inferior to the yield of corporate bonds.

Secondly, deposits in any situation lose to the bond market. At rising rates, fixing interest for a long period of time turns out to be unprofitable, as in a month the market rate may already be higher. In bonds with variable coupon or liquidity funds there is no such problem, they fully reflect the growth of rates in the accrued interest. With falling rates, fixed coupon bonds grow in value, giving additional income, unlike deposits, which will have to be renewed at lower and lower interest rates. Not to mention the fact that in bonds the income is accrued daily and is not lost when sold.

Thirdly, risks are also present in deposits. Deposits are insured only for the amount of 1.4 million rubles. The amount above this threshold is already at risk of revocation of the bank's license. In the current environment, there is also a risk of imposing restrictions on withdrawal or spending of funds on deposits, the so-called freeze. This scenario seems unrealistic, but the probability of its realization grows every week with the publication of inflation data.

In this case, we do not consider shares, as it is a much more risky instrument for investment. It is incorrect to compare it with deposits. In the current environment, stocks are under pressure, as bonds look more attractive. Thus, investors who soberly evaluate economic benefits and potential risks use deposits to a limited extent in order to diversify their portfolio.