Cyprus bank deposits returned more than 24 percent over the past five years, almost double the returns on comparable German accounts.
An investor who put $1,000 in a savings account in Cyprus in January of 2008 and kept the funds there would have earned at least $242 over five years, according to data from the Central Bank of Cyprus. A comparable account in Germany would have returned about $130, calculations based on Bundesbank data show.
“Banks in countries like Cyprus and Greece can pay higher interest rates as they also earn more on loans,” Dirk Becker, head of banking industry research at Kepler Capital Markets in Frankfurt, said by phone. “In addition, Cyprus banks invested a lot in high-yielding Greek debt in the past.”
Now Cypriot account holders may be forced to give money back, as the government considers a deposit tax to raise 5.8 billion euros ($7.5 billion) and lessen the cost of a European Union bailout of the banking system. A vote on the tax, needed to secure 10 billion euros in rescue loans, was delayed for a second day until tomorrow. Banks will remain shut through March 20 after a holiday today, a government official said.
German deposit rates fell to 1.5 percent in January of this year from 4 percent five years earlier, Bundesbank data show, as the European Central Bank lowered interest rates. Deposit rates in Cyprus increased over the same period to 4.45 percent from 4.25 percent.
The ECB has lowered its main refinancing rate to 0.75 percent from 4 percent in January 2008.
To contact the editor responsible for this story: Frank Connelly at email@example.com