Unlike 2023, saving in 2024 will be much more difficult for Ukrainians. Last year, an unexpectedly strong decline in inflation from 26.6 to 5.1% ensured very high real profitability minus inflation for hryvnia deposits and government bonds. This allowed citizens not to worry too much about choosing between these two financial instruments.

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But in 2024, inflation should rise, not fall.. The official NBU forecast assumes growth from 5.1 to 8.6%. But in reality, due to the low base effect of the second half of last year, it could be about 9–10%.

At the same time, the NBU rate is now not 25%, as at the beginning of 2023, but only 15%. The real profitability of deposits and government bonds (interest rate minus inflation) will be much less. When every percentage point counts, choosing the most profitable instrument becomes much more important for preserving and increasing savings.

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Comparison of bank deposit and government bonds.

Bank deposits and government bonds are the most reliable financial instruments in Ukraine. The protection of the first is provided by the Deposit Guarantee Fund of Individuals, acting on behalf of the state. The protection of the second instrument is guaranteed directly by the state. But if the reliability of two instruments is approximately the same, then the profitability is very different.

The difference arises due to the higher nominal profitability of government bonds than bank deposits, as well as due to differences in the tax regime of the two instruments.

Nominal rates for bank deposits are lower than for government bonds. The bank is a commercial structure, and in order to make a profit, it must attract client funds at a rate lower than it could place them in the same government bonds. This difference is usually 2–4 p.

The tax regime of government bonds is also better than bank deposits. On income from them you do not need to pay personal income tax of 18% and military duty of 1.5%, but payments will have to be made on income from bank deposits.

If we take 13% per annum as the interest rate on a deposit (these are the current conditions in the country’s largest banks), then with an investment of 100 thousand. UAH per year nominal income will be 13 thousand. UAH. Paying taxes will reduce nominal profitability to approximately 10% (a little over 10 thousand. UAH). And inflation of 9–10% will reset the real profitability of a bank deposit.

The situation with bonds is more optimistic. In January 2024, the maximum rate on government bonds placed at auctions in hryvnia was slightly more than 18%, while the average profitability was 16.5%.

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There are no taxes on profits received from the purchase of government bonds, but there are commissions from intermediary organizations: either banks or financial companies. On the market you can also find those who charge almost nothing for this, but for the sake of relevance of the comparison, we are considering the conditions of the same large banks. Buying bonds from them for a year will cost approximately 1450 UAH.

If you place the same amount of 100 thousand. UAH in government bonds, then the income will be 16.5 thousand. UAH. Minus commissions, the nominal profitability will be about 15%, or UAH 15,050. With inflation at 9–10%, real profitability will be 5–6% per year. Not much, but at least not a loss.

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How to buy government bonds.

In recent years, it has been easy to buy government bonds. This can be done both through banks and through special financial services, or even simply through the “Diya” application.. In all cases, all procedures can be carried out online. Follow the link to find a detailed step-by-step algorithm for purchasing government bonds.

In general, the whole process takes a couple of days, and only because of the need to open a special account and sign documents (electronically). This is necessary so that the intermediary can purchase bonds on your behalf.. An individual cannot do this directly.

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Government bonds can also be purchased at branches of banks engaged in their resale.. Here you will also need to open a securities account and sign a service agreement. After this, independently or with the help of bank employees, select the appropriate bond issue. But it’s much easier to do it online..

A nice bonus: by buying government bonds, you not only save money, but also help the state get through very difficult times.

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