Bank risk

[jiwko]

Hi All !

I want to ask you , what is the risk if one bank who give me 8 % interest rate is default.
And why I have to deposit my money in another bank who give me only 1 % interest rate.
I know, then my money are under garant fund up to 20 000 euro. What is the risk?

Thank you ..........

 

[danfreek]

I'm not sure I know exactly what you're trying to ask. Do you mean to say that your funds are guaranteed upto 20,000 euros in either bank? If so then your risk is anything that you place into the bank above 20,000 euros plus the next best interest rate that you could recieve, in this case 1%. If the funds are only guaranteed upto 20,000 euros in the bank paying 1% then you risk the entire deposit by going for the higher rate, but you would have to concider the likelyhood of the bank defaulting. Without knowing the banks in question and the specific banking laws that the banks are subject to, it is an impossible question to answer.

 

[jiwko]

Bank Risk

Hi !
Thank you for the answer .

The problem is that my money are 10 000 euro in bank for 8 % intrrest rate.
The money are garanted upto 20 000 euro.
But I see that there are another banks, who give 1 % interest rate.
Where I have to deposit my money? How much is the risk ?

 

[danfreek]

Ok, so you already have 10,000 euros in a bank paying 8%, and it's guaranteed up to 20,000 euro's, so that means that the risk should be insignificant. I am still confused about the last part, the low interest rate may be because the account is different, you usually don't see such a difference in rates of comparable accounts, so firstly I'd check all of the conditions of the different accounts.

I'm not sure if you are saying that you have to deposit your money at a lower rate, or simply that is is an option, if you have no ther choice, then the risk is not an issue, however, if it is an option, then personally I would continue to deposit money into the bank paying 8% until you reach 20,000 euros, at this point you would need to look at how stable you believe the bank to be.

 

[jiwko]

The interest rate is for time deposit for 1 year. This is same term for 2 banks. The difference is interest rate. The currency is EUR. Obviously, the risk is bigger in the bank who give me 8 % interest rate. One rating is AA, another B- . The problem is that if the bank default I doubt that the garantion from 20 000 Euro will be possible to available in the garantion fund. If money in the fund are no enough, I think that this can be very big problem. What you think about ?

 

[danfreek]

Sorry, I think I misunderstood you. I assumed that you were talking about deposit or savings accounts!

Is there a web page with details on? I would need to know a lot more about the products before commenting on them. the main concideration would be your risk tollerance, how important is this money to you? If you lost it would it affect your quality of life? If the answer is yes, then you need to place the money in as safe a place as possible, the less important the money the more risk it is advisable to take, up to a point.

 

[jiwko]

Bank Risk

http://www.eibank.bg

http://www.ing.bg

 

[danfreek]

Unfortunately I don't have too much time so I could only briefly look over the websites. I assume that you are refering to the eurodeposits which pay 8% for a 12 month period. this seems normal to me, the only thing to watch out for is that it says the high interest is no paid under "violation of clauses of Eurodeposit contract", so you will want to find out the exact terms of this contract. The ING account looks much more like a normal deposite account, I don't think the two are directly comparable.

Have you talked to anyone at either of the banks? They are often very helpful at explaining their products.

Back to the origonal question though, what is the risk? You seem to have credit ratings for the banks, I think that would be a good answer in itself.

 

[jiwko]

Bank Risk

Terms and conditions for Eurodepisits are same as time deposit.
But I doubt about this bank. I think that the risk is very big. This is no real market interest rate.
This is speculation and maybe piramid. Another deposit in this bank is for 27 % for 3 year, and the bank pay interest rate for 3 years in the day now - when you open the depisit.

 

[danfreek]

You're right, it does sound slightly too good to be true, but I can't say if that's the case or not. Have you talked to the bank to ask them why their rates are higher than equivalent accounts? If they don't have a satisfactory answer then that would send a warning signal, but there may well be a very simple answer, but only they will be able to give it.

 

[jiwko]

Yes, I ask the bank to give me information about this, but they tell me that have not problem and the bank is impossible to default. Interest rate is too big because the bank is better from another banks. They was not very helpful with me.

 

[FetteredChinos]

why not spread your risk accross all three banks in that case?

 

[jiwko]

Yes, maybe this is very good idea, but I trade to make money. 1 % is not good for me.
I try to manage the risk.

 

[danfreek]

This really isn't trading, this kind of deposit would be concidered a low risk investment, FC's idea of spreading risk would be a good idea.

I was hoping the banks would be a bit more helpful than that, but I'm not surprised that they weren't. From that response though I would say that it sounds as if there isn't much of a difference between the banks, it sounds as if your money is safe with them, although anything I say here isn't advice, only opinion.

essentially though compared to trading futures etc, the risk should be insignificant. I have to say that I don't even concider the default risk from my banks, while it exists, the economy of the country would have to be severly hurt before it would be a concideration for me in the UK.

 

[jiwko]

Yes, the money in bank are with little risk, but I think this is true only for big banks.
But if 2 banks default in one time and the one give 1 % , another 8 % interest rate, then all will loss, if garantion fund is not possible to pay the money. I think that who have money in the risk bank (8%) they will win.

 

[FetteredChinos]

if you are worried about keeping your money in a bank, then why not just keep it in a jar in your house?

as in all things, you have to make these decisions yourself. there is only so much that an internet forum can offer.

i wish you luck,

FC

 

[danfreek]

If I understand what you're saying, yes, it is always best to get the highest return possible for a given risk, if the risk is the same for the two banks, then yes, the one paying 8% is the better option.

 

[jiwko]

If I put my money in jar, I can't win.
We are in the business to make money.
The jar can be stolen.