Everybody likes to make money and what better way to make more of it than to just let it sit at a bank. Banks have long existed as an intermediary between people wishing to store their money safely and those that want to use it for various purposes. The depositors essentially lend their money out to the banks at a prespecified interest rate who in turn lend it out to people that are in need of money. Naturally, banks charge an interest rate to these people which is a notch higher than their own interest rate that is given to the depositors.
In Bhutan, the deposit interest rates have largely remained the same since banks started operating in the country. The interest rate for a savings account is around 5% whereas that of the current account is 0%. This means that if you keep Nu. 100 in a bank for 1 year, you will earn Nu. 5 on your savings account and nothing on your current account. This is because, as implied in the name, the former is specifically meant to earn you money whereas the latter is meant for you to carry out your business transactions. You can only open a current account for your business venture. These accounts are also called demand deposit accounts because customers can demand that the bank give them their money when the need arises.
There is another class of deposit account that’s timebound which are called term deposits. There are two broad types of term deposit accounts and they are recurring and fixed deposit accounts. The former as the name suggests entails the customer depositing a certain amount into the account every month for a fixed time period. The latter on the other hand is a one-time deposit that is kept in the bank for a fixed period of time. Fixed deposits usually fetch the highest interest rate. Withdrawing the money in your term deposit account before its maturity will cost you a penalty of a few percentage points.
In Bhutan, there are 5 banks that provide you with all three kinds of deposit products. The comparison of interest rates of various types of deposit products are presented below (source: RMA Monthly Bulletin, January 2021);
As you can see, T-Bank Ltd provides the highest savings interest exceeding even the generous BDBL, exceeding by a full 0.15%. If you consider a Nu. 100 savings, it may just amount to Nu. 0.15 but as the investments increase, it forms a sizable amount. Someone with an investment of Nu. 100,000 would have to forgo Nu. 150 in interest in a year, if they were to choose BDBL instead of T-Bank Ltd. Similarly, choosing either BOBL, BNBL, or DPNBL as opposed to T-Bank Ltd. for the same investment, would mean a loss of Nu. 750 in interests in a year. It is thus sensible to think that one would only choose the bank that provides the most bang for their buck. If it were the case, T-Bank would be brimming with deposits, which is not the case. There are several factors that people consider when choosing to avail a certain bank’s services and that includes factors such as proximity, digital channels, and customer service among others. One must also be wary of other fees and charges that a bank levies such as annual maintenance fees. Although T-Bank has a marginally higher savings interest rate, it’s annual maintenance fee is Nu. 250 compared to BNB’s and BOB’s Nu. 150. All banks charge annual maintenance fees. There are also other nuances like the requirement of minimum balance to open an account with a bank, that you need to check before opening an account.
The interest amount in Bhutan is calculated using the simple interest rate method (PRT/100). This calculation happens every day on the day’s final balance. The interest amount keeps on accumulating every day until the end of the month when the full interest amount is credited to the customer’s account. For instance, the interest rate for a savings deposit is 5% p.a. If you have Nu. 100 in it for 1 day, the account will have accrued ((5/365)1001)/100 = 0.0137. In a month, that would be approximately (0.0137*30) = 0.411 which in turn would be (0.411 * 12) = 4.932 in a year. This amount is short of the Nu. 5 you should have gotten because this calculation doesn’t reflect the interest that is plowed back into your account at the end of every month.
For fixed and recurring deposits, the interest is also calculated in a similar fashion.
