Fixed-Term Deposit Interest Rates Drop to Their Lowest Level in 12 Months

In July 2024, Ecuadorian fixed-term deposit interest rates peaked at 8.45%. However, as of January 2025, these rates have fallen to 7.19%. This prompts two key questions: Why are rates declining? And is investing in fixed-term deposits still a good idea?

What Caused the Drop in Interest Rates?

Throughout 2024, fixed-term deposits surged in popularity. By the end of the year:

- Banks held $23.42 billion in fixed-term deposits.

- Cooperatives managed $15.32 billion.

Both sectors experienced double-digit growth, driven by financial institutions raising interest rates to attract national savings amidst rising taxes and reduced access to external credit.

By mid-2024, interest rates reached their highest point at 8.45%. However, as 2025 begins, the story has changed. Banks now have plenty of liquidity. In fact, during 2024, for every $2 in deposits, they could only lend out $1. The economic downturn meant $3.38 billion less in loans were issued in the second half of 2024 compared to 2023.

As a result, banks are less eager to attract deposits in 2025, focusing instead on issuing more loans. Since 86.3% of bank income comes from lending, their priority is to lower credit interest rates by first reducing fixed-term deposit rates.

Are Fixed-Term Deposits Still a Good Investment?

Yes, they remain a secure and profitable option, even at the lower rate of 7.19%.

This rate still outpaces inflation, which is projected at 2.2% for 2025. For example:

- Investment: $5,000 at 7.19% for one year.

- Gross Return:

$5,000 × 0.0719 = $359.50

After accounting for inflation:

- Real Rate of Return:

7.19% − 2.2% = 4.99%

- Net Return:

$5,000 × 0.0499 = $249.50

By investing, you earn $249.50 in real terms, compared to losing purchasing power by keeping $5,000 in cash. Without interest, inflation would reduce its value to $4,890.

In short, while rates have dropped, fixed-term deposits still offer a safe way to grow and protect your money in 2025.

See our guide How to Invest in Ecuadorian Certificates of Deposits (CDs) for information about investing in CDs in Ecuador. We've also created a tool to compare CD interest rates: Compare CDs.

Source: La Hora.