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Interest Rates on Bank Deposits in Turkey

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Hi all. I'm thinking of moving to Turkey and wondered if you have any personal experience with deposits in Turkish banks. The interest rate on deposits I was quoted is so high that it seems incredible to me, but if it is reliable I would think about this option. So I'd like to get some information from someone who has made a similar investment. Can you give me any pointers, or do you know someone who can? Thanks in advance!

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If you look at the interest rates only, you will get a distorted picture. You also have to look at the inflation rate and subtract that from the interest rate to get the real rate of return.

INTEREST RATE - INFLATION RATE = REAL RATE OF RETURN

Let's use my own case as an example. Here's my situation in the USA:

My bank in the USA offers a one-year fixed-deposit interest rate of 2.1%.
The inflation rate in the USA is 2.0%.

Calculate: 2.1 - 2.0 = 0.1%.

My real rate of return in the USA is: 0.1%.

That doesn't sound like much, but it is based on money-market instruments, which are very short-term (even overnight) debt paper which has extremely low risk.

In one year, my $1,000 USD will be $1,021.

But when I go to spend it, anything which cost $1,000 now will cost $1,020 one year for now.

If you need to keep your money in safe investments, and at least beat the inflation rate, these time deposits are a good idea. If you want a higher rate you would need to invest in mutual funds, which are collections of money, managed by a professional investment manager. There are different funds with different mixes of money market debt instruments, bonds, and stocks. It can get quite complex, but there are lots of great books on personal finance and investing out there which explain these things. But we are talking about deposit accounts in Turkey so I'll get back to that.

Here's my situation in Turkey:

At my bank in Turkey, I opened a one-year fixed-deposit (Sabit Faiz Kampanyası) account with an interest rate of 21.25%.
The inflation rate in Turkey is 19.5%.

Calculate: 21.25 - 19.5 = 1.75%.

My real rate of return in Turkey is  1.75%.

In one year, my $1,000 TL will be 1,212.50 TL.

But when I go to spend it, anything which cost 1,000 TL now (like your rent) will coast 1,195 TL.

So in both countries, the interest rates just barely keep you ahead of inflation. Neither should be used for any long-term investment. But now we have another issue.

Exchange Rates

Personally, I am bringing as much money into Turkey as I can. The reason is because I want to buy a car here, and I want to move in one year. All of that will happen here. Because of the exchange rates, things are better for anybody with US dollars than it has ever been. And in my opinion, this will correct itself over time. So my strategy is to bring money in NOW, and put it in bank accounts (as above) so it isn't consumed by inflation. I don't think I will be able to get an exchange rate like they are now for very far in the future. I may be wrong, but it doesn't matter. I'm going to be using the money here anyway, I will not be exchanging it back to US dollars. So transferring US dollars to Turkey, for me, right now, is a good decision.

Transfers and Bank Machines

If you transfer money from your country to Turkey, your bank makes big money in two ways: Fees and spread. The fee is obvious, that's what you hear and that's what you think it costs. The spread is value between what they buy the foreign currency for and what they sell it for. So if your bank converts the money and sends it to a Turkish bank account, in TL, you will have not only paid the fee but also lost money because your bank took a chunk from the spread. This also happens with ATM withdrawals.

Next time you withdraw money from the ATM in Turkey on money in your home bank account, go online to your account and see how much they charged you, then how much difference there is between what it should have cost you (according to Oanda.com or local exchange rates) and what you actually got charged for. Every time you take out money from an ATM this happens.

International Money Transfer Companies

Companies like TransferWise can save you a lot of money. Especially if you are buying a house! Banks don't specialize in international bank transfers. They are just an add-on service. So their fees, and the amount of money they take in the spread between the buy and sell rates, can be much higher than companies which specialize in international money transfers.

You can also actually fix an exchange rate in advance, for a transaction to happen in the future.

Because these days all of my expenses are in Turkey, I am going to use TransferWise every month to transfer my money to a US Dollar account at my bank, then exchange the money here and put it in a Turkish account. I think this is the most cost-effective way to do it.

Transfer In Your Country's Currency, Exchange With Your Turkish Bank

Open an account in your own country's currency as well as a Turkish Lira account. That way, when you transfer the money, there is zero currency exchange involved, and no opportunity to take a cut of the exchange rate. Just transfer it dollar for dollar, pound for pound. Just get it here. Then, you can have your Turkish bank exchange the money for you and put it in a Turkish account at far better exchange rates.

The Döviz (Foreign Exchange Shop) Vs Bank Exchange Rates

Your Turkish bank obviously can exchange your foreign currency into TL and put it in your account. Do your own calculations to see if there is any big difference between their exchange rates and any others, but it should be minor. There is not a "better rate" at the foreign exchange shops. It's just a different rate, that fluctuates minute buy minute. And it depends on the supply and demand of the foreign currency they are dealing with in their own channels. So sometimes a bank will have better rates than a foreign exchange shop right next door, and vice-versa.

I hope that answers your question.

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Hi Ken, this is Andrew writing from Talya's account (from which I also posted my question),

Thank you very much for your reply and the information. It's really well-expressed and written. I'm in pretty much the same position as you and have the same way of thinking. As always, there are really only three main types of investment - cash, property and shares - all of them carrying risks and/or poor returns at the moment, so unfortunately it's a case of which is the least worst.

Really appreciate your explanations and suggestions, thanks!

Andrew

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I remember the economic crisis back in 2000 or so. The Turkish Lira was hit so hard, nobody was really sure what it was worth. It dropped in value from like 1.5 USD to almost 3.0 USD!

A lot of people were selling shares, selling property, buying dollars, etc. That's exactly the wrong thing to do. They should have been buying Turkish Lira--not selling it. After the government got the economy under control, the Turkish Lira came back again. And people were sorry they had sold their TL, or even property, at such a low price. And some of us who got paid in US dollars were kicking ourselves because we could have bought houses at a bargain because of the exchange rates.

I may be wrong, but I think the situation we're seeing now is going to correct again, just like it has before. If the Turkish Lira is cheap as compared to other currencies, then people (and companies) are going to start buying stuff, and taking their holidays, in Turkey. The water will flow to the lowest point. And over time, it will cause the value of the TL to rise again. Even if I am wrong, it doesn't matter, because I don't intend to exchange the Turkish Lira for US dollars again.

I am going to move, and buy a car, probably in a year or so. By buying the Turkish Lira now, I'm getting exchange rates better than I have ever seen. If the inflation rates go up, no problem. The TL I'm buying will keep up with it because it's earning around the same amount of interest.

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Hi Ken, one last question.... can you tell me the bank you are using? I will be doing what you have suggested, opening two accounts, one in AUD and one in TL, transferring money from Australia to the AUD account using TransferWise. Can you tell me the documents that are required to open an account?

I take your point about buying when people sell, thus driving the price is down, and usually share your attitude. Naturally, picking the bottom is difficult and a low value - whether it is of apples or currencies - may be the start of an ongoing and even steeper decline, rather than a good entry point (I would have kicked myself for buying Venezuelan Bolivars a year ago!) but generally I agree with your principle.

Many thanks,

Andrew

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I think you are wrong. I can ensure the situation will be worse than now.

I'll need the money to buy a car, in Turkey, on 31 October 2020. I can't get around that.

I will also need to accumulate the money to pay cash, and then exchange the US dollars for Turkish Lira sometime before 31 October 2020. I can't get around that, either.

I transfer money every month anyway, because my income is in US dollars, and it doesn't cost me anything more to transfer a higher amount. So by transferring the car money as well every month, whether the exchange rate goes up or down, I'll end up with a kind of average of the exchange rate from today to 31 October 2020, then have whatever interest accrues on the funds while they are in the Turkish bank account.

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I can ensure the situation will be worse than now. 

You may be right. I am assuming you mean the general financial situation will be worse for Turkey, which would mean that the Turkish Lira will weaken. In that case, the best solution would be to accumulate the money in the US bank until around 31 October 2020, and then transfer it all at once on that date.

I don't think it's possible to predict what an exchange rate will be in more than a year from now. I just know that the rates are very good now, and it makes sense to me to take advantage of it and change the money now.

If I remember to do it after 31 October 2020, I'll come back and update this post so we can see how things turned out! :D

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can you tell me the bank you are using? I will be doing what you have suggested, opening two accounts, one in AUD and one in TL, transferring money from Australia to the AUD account using TransferWise. Can you tell me the documents that are required to open an account?

I'm using YapıKredi, but that's because my landlord has an account in that bank and I can make free automatic transfers to pay the rent. Also, it's just down the street from my house.

Opening a Bank Account

To open an account, you'll need

  • a passport
  • a residence permit
  • Proof of an address
  • Tax number (if you don't have a residence permit)
  • Initial deposit
  • mobile telephone

Banks have been hesitant to open a bank account for anybody without a residence permit, because people have been using the accounts solely to prove they have money, then they withdraw the money and leave a dead account. So you may need to convince the bank manager that you are not going to abandon the account.

At Yapı Kredi everything was done on the spot. The bank windows are like proper sitting desks now, and the "teller" will open your account without your having to go to another area of the bank. Besides their forms, I got a few messages on my mobile phone with identification codes for the bank representative to enter into his terminal. Then we downloaded Yapıkredi's mobile app. I got a bank card in about a week delivered to my house. I'm very happy with Yapıkredi.

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