Some banks have launched high-interest rate certificates of deposits (CDs) to attract capital. However, customers should be cautious because high interest rates are only applied in the first year and will float according to the market in the next years.
Viet A Commercial Joint Stock Bank (VietABank) has issued CDs at the highest interest rate compared to the current level. Individual customers buying CDs of a minimum of 10 million dong on 24-month term will enjoy interest rate at maturity of 9.1 percent per annum and monthly interest rate of 8.38 percent per annum.
Meanwhile, Saigon Hanoi Commercial Joint Stock Bank (SHB) has introduced CDs at interest rates of up to 8.9 percent per annum. Customers buying CDs of less than two billion dong on terms of 18 months, 24 months and 36 months will be offered interest rates of respectively 8.6 percent, 8.7 percent and 8.8 percent per annum. For CDs with value from two billion dong and more, the rates for the above terms are respectively 8.7 percent, 8.8 percent and 8.9 percent per annum. For corporate customers buying CDs, SHB applies the rate of 8.2 percent per annum for flexible terms from six months to 36 months.
Maritime Bank Commercial Joint Stock Bank has launched Loc Bao Phat CDs which are associated to government bond investment yields. Accordingly, the interest rates of this type of CD can be 30 percent higher than normal savings products. The current deposit rates of six-month, 12-month and 18-month terms at MSB are respectively 6.8 percent, 7.3 percent and 7.7 percent per annum.
Previously, from February 19th 2019 to March 31st 2019, Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) introduced the medium and long-term CDs in 2019 with interest rate of 7.6 percent per annum, interest rates can be fixed or floated on terms of 18 months, 24 months and 36 months.
Although the interest rates of CDs are higher than savings interest rates, customers should note that CDs have longer term and the capital withdrawal before maturity is less flexible as regular savings books. If customer urgently needs capital but the CD is not yet mature, they can pledge the valuable paper at the bank to borrow but the interest rate will be higher than the rate offered in the CD owned by the customer.
Why do banks not raise interest rates?
Director of a commercial bank said that “The number of issued CDs is limited, helping banks easily manage and control the mobilised capital in order to stop when the mobilisation fund is sufficient.
If savings interest rates are raised, it must be applied throughout the system. When being in short of capital, banks announce high interest rates but they will lower the rates when they mobilise enough capital. The application of CDs helps avoid shocking customers when sudden changes in deposits are applied.
Why are CDs’ interest rates high?
Talking to reporter of Lao Dong newspaper, director of a commercial bank said that firstly, CDs are issued in a period to meet banks’ unexpected capital needs. Secondly, some banks want to restructure their short-term funds used for medium and long-term lending in compliance with the SBV’s regulation.
The SBV has announced the draft circular regulating the safety limits and ratios in operations of banks and foreign bank branches. This circular provides a roadmap to lower the ratio of using short-term funds for medium and long-term loans.
Dr Lawyer Bui Quang Tin CEO of BizLight Business School talked to reporter of Lao Dong newspaper that although the interest rates of CDs are attractive, customers should consider carefully because the rates are only applied in the first year as a form of promotion and they are floated in the following years, usually equivalent to the average mobilisation interest rates of four state-owned banks plus an amplitude. Thus, the rates are only at an average level in the capital mobilisation market, because the current mobilisation interest rates of state-owned banks are often 1.5-two percent per annum less than small banks’.”
