Thursday, May 17, 2007

High Rates Everywhere

When I read American personal finance blogs, one thing is constantly in my mind – we, Russians, have such high rates everywhere! I mean credit and loans interest, but also inflation and even bank deposit interest rates and stock market revenue.

I will give here some figures.

1. Inflation.

It might seem monstrous to somebody who is used to 3% inflation, but the official inflation in my country was 9% in 2006. It is even considered to be good, because this is the first year when it’s a one-digit number. As far as I remember – and I stopped being financially naïve not so long ago – inflation used to be a low-teens percentage. I did a search about previous figures on the Internet and that’s what I found:

2006 – 9%

2005 – 10.9%

2004 – 11.7%

2003 – 12%


2000 – 20%


1995 – 130%

Wow! We surely have made a long way from over a hundred to a single digit! It is also anticipated that the 2007 figure will be less than 9%.

2. “Federal funds” rate.

A number which corresponds to Federal funds rate in the USA currently equals 10.5% in Russia. Let’s have a look at its history:

2006 – 10.5%


2000 – 45% (ouch...)


1995 – 200% (I never knew this...)

3. Bank deposit.

Bank deposit interest rates usually tend to be a little smaller than “Fed rate”. I compared the current offers of three banks, which are among the biggest and most respectable. On average they give about 8% in interest if savings are kept in rubles and maybe 5-6% if in dollars or euros. The numbers depends on the amount of money put and the deposit period. And well, I distinctly remember 10%+ rates not so long ago.

4. Credit.

Oh, credit is such an expensive thing! The rates gradually decrease but are still soaring.

The most expensive is the money that is borrowed stuff like cell phones, TVs and computers. The rate here can easily go up to 20, 30 and 40%+.

Mortgage usually has a rate in low-teens. I’m not sure I have seen the offers with less than 10% rate.

Student loans are surprisingly expensive, no less than 10%. They are not very popular here. People either get an education for free or their families pay it without using credit.

It seems that auto loans are the cheapest. I’ve seen manageable figures like 3-6%.

5. Stock market.

That’s where high rates are something wonderful and very enjoyable. In 2005 Russian stock market revenue was up to 70% and about 50-60% in 2006. Looking back to 1995... Well, it’s amazing, it’s hundreds %. Why didn’t I have enough money, brains, guts and years to start investing then? :)

I can see a distinct trend here. Nineties were a wild period with enormous figures everywhere. From then the rates have been gradually and steadily declining. I think in the end Russian finance system will reach the state of mostly single-digit rates. It’s interesting to notice that people are very used to these huge numbers. Even financial advisers in personal finance magazines are blinded by them. Very often I see 20 and 30-year financial plans in these magazines where inflation is assumed to be somewhere around 10% and prospective investment 20% and more – such an optimistic hope! But the whole situation is changing and it’s more likely that all these rate figures will be much smaller in 20 or 30 years.

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