08 September 2022

Savings

Mariam Ter-Sahakyan
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 Life cycle consumption model of : Smoothing the Path: Balancing Debt,
Income, and Saving for the Future

• people prefer smooth

consumption over time
• both borrowing and
saving help smooth
consumption over time

By Franco Modigliani, winner of the 1985

Nobel Prize in economics.
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Savings is a means to smooth your consumption during times when
your income is not enough to cover your wants and needs.

Savings, according to Keynesian economics, consists of the amount

left over when the cost of a person's consumer expenditure is
subtracted from the amount of disposable income he earns in a
given period of time. Savings can be turned into further increased
income through investing in different investment vehicles.

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 If you want to …
Become financially independent
Pay for your education yourself
Buy a car
Buy a home
Not have/Get out of debt
Be ready for unexpected emergencies
Ensure your retirement
Realize your dreams
Help your family
…
You should SAVE!

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 Where?

At Home

Securities Bank Deposits

Pension Funds Gold

Real Estate

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 Magic Triangle - They can’t always be together

Return

Liquidity Safety
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 Magic Triangle - They can’t always be together

Bank deposit
Return Savings tool
Bank account/current
account/checking
account 
day-to-day money
management tool

Liquidity Safety
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At home?

Saving under the matrass or

in a vault ?
- It does not increase our
money
- At the same time brings
some risks such as theft,
inflation, fire …

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 Deposit in a Bank

When we deposit in a bank, it does not stay in the

account waiting for us to pick it up.
The bank uses it for investment in businesses that
bring profit, and the bank gives us part of that profit
through interest.

They keep your money safe and make it grow.

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 Term Deposits
2 basic types of Bank Deposits are:
Term deposit: it’s a financial instrument where a sum of money given to a
bank pays interest at a specified percentage for the time duration of the
deposit.

Pros Cons
 The interest is higher, and for larger
 They have a much higher
amounts with a larger term the money
minimum balance required to
increases at a greater rate
open and maintain the account
 Your interests can be compounded
 In case of withdrawal you can
 Safety of your future: ADGF
lose your interest
 Lower risk of fluctuations (vs securities)
 Income tax: The interest received
 The bank can’t refuse to refund your
is treated as income and is
money
taxable (10%)
 Easy to open, also by phone, online
 Inflation
 Use it as a pledge when getting a credit

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ADGF – Armenian Deposit Guarantee Fund
 Demand Deposits/Bank Account/Checking Account

Demand Deposit: Demand deposits can be "demanded" by an account

holder at any time. Many checking and savings accounts today are
demand deposits and are accessible by the account holder through a
variety of banking options, including ATM and online banking.
Pros
 The money is easily accessible and can be
withdrawn at any time with no penalty (loss of
interest)
 There is typically a very low minimum Cons
balance that is required to open and maintain  The interest is lower
a current account  Income tax: the interest received
 Safety of your future: ADGF is treated as income and is
 Lower risk of fluctuations taxable (10%)
 The bank can’t refuse to refund your money  Fees for banking services
 Easy to open and use by phone, online  Inflation
 Possibility to Payback/Cashback

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 Gold
You can buy Bars and Coins, Jewelry, open Gold Deposit Account

Pros Cons
Perfect correlation to the market price No interest income
of gold  Production costs can add the cost of the gold
Bars and coins are accessible to the itself
private investor and you can invest in You may need to visit a dealer and arrange
relatively small amounts of gold secure transport, and you will need
There is no “counterparty risk” – your somewhere safe to store your gold, as well as
investment does not rely on someone insurance, all of which may involve extra cost
else keeping their promises or Risk of burglary, accidental damage and theft
remaining in business inside the house
Easy to buy and sell In case of jewelry, it may be linked more to
Relatively safe fashion trends than to investment value

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 Real Estate
The goal of investing in real estate is for the property to provide
income and appreciate in value. This can be done through rental
properties, real estate investment trusts, or reselling properties for
profit.
You should measure the Return on Investment (RoI):
Pt – (Po + C)
RoI =
𝑃𝑜
Pt: the price for which it sells today
Po: original purchase price
C: cost of ownership/upgrades

If it will be high, it will be considered as a good place

to put your savings.

* “Personal Finance”, Walker/Walker 13

 Real Estate
Pros
Passive Income: it will be
used as rental property, you
are developing a stream of
passive income (that comes
to you without requiring you
to work actively for it)
Asset appreciation: you
hope to make money
through increasing property
values
Relatively safe
Cons
Liquidity is low: you can't sell it quickly without
significant losses
Depreciation risk: not all property is going to
appreciate in value. During the housing crisis of
2008-2011, real estate property values fell by as
much as 50% in some areas. Real estate
values can also change due to changing
demographics and demand
Failure to receive rent payments: if your tenant
loses her/his job, you may not receive rent
payments and thus you may have to evict the
tenant
Unoccupied property: when tenant move out,
there is a chance the property will sit vacant
until other tenants move in
Risk of fire, burglary, accidental damage and
theft
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ASPECTS of
DEPOSITS

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 Aspects of saving deposits

Terms and Conditions

Price –> APY (annual percentage yield)
Diversification
Contract
Scam/fraud
Regulation
Your Rights

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 Aspects of saving deposits

Terms and Conditions

Opening fee
Minimum balance
Monthly service fee
Currency
Possibility to add or withdraw
Interest
…

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 Aspects of saving deposits: Terms and Conditions

Opening fee and Monthly service fee

Usually no (vs bank account)
Sometimes can be  check it out
Additional services  attached payment card, additional current
account to pull your interest income

Minimum balance
For the Term Deposits it’s higher (in different banks AMD 30 000, 50
000, 100 000, 500 000 …) vs demand deposits/bank account

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 Aspects of saving deposits: Terms and Conditions

Currency
In AMD, US Dollar, Euro, Pound Sterling, Swiss Franc, Ruble
Mono Currency
Multiple Currency
Be aware of exchange rate risk!

Possibility to add or withdraw

Increase or partially withdraw the deposited amount is optional, check
it yourself: there is or no?
In general you cannot withdraw
In general you can add, but not the last three months

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 Aspects of saving deposits: Interest

Interest rate
Simple vs Compounding

Flat vs Progressing

Payment frequency

 Interest income  tax 10%

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 Price of Bank Deposit

 Price = nominal interest rate - other fees

compounding frequency = annual percentage yield
There are in general (all types of deposits) free
There may be some costs/fees associated with
deposits (cards, additional services …). They are
all included in APY.

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 APY - Annual Percentage Yield or APY
Տարեկան տոկոսային եկամտաբերություն

APY – interest, which a person will receive against a 1,000

dram deposit in 365 day, based on application of annual
simple percentage rate, percentage compounding and
payment frequency.

Compare the APYs and not only Nominal Interest Rates

Banks must disclose APY before contract and in the contract
as well.

Law on Attracting Deposits 22

RISK MANAGEMENT

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 Don't put all the eggs in one basket!

Diversification

Currency Institution Instrument

Exchange rate Guarantee Access and

risk Income
limit
Flexibility
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 Think about it!

Suppose you have free money in the amount

of AMD 1,000,000.
“I am the best” company asks you to deposit
this money with a promise to return AMD
1,500,000 after a month, what will you do?

Only BANKS can take deposits  check if the company is 25

licensed for taking deposits on www.CBA.am

 Armenian Deposit Guarantee Fund
Guarantee of remuneration of deposits (accounts) invested in
the banks operating in the Republic of Armenia, on behalf of
physical persons, including sole proprietors, in the amounts
specified by the law
AMD Up to AMD 16 000 000

Other Currency Up to AMD 7 000 000

AMD and Other Currency Only “AMD” up to AMD 16 000

“AMD” is more than AMD 7 000 000
000
AMD and Other Currency “AMD” fully
“AMD” is less than AMD 7 000 + Other Currency up to AMD 7
000 000 000 with “AMD “
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REGULATION

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 Deposit Definition in Civil Code of Armenia

Under the contract of bank deposit, one party

(the bank) that has accepted a monetary sum
(the deposit) coming from the other party (the
contributor), undertakes the duty to return to the
depositor the sum of the deposit and to pay
interest on it on the conditions and by the
procedure provided by the contract.
You can deposit this amount as a Natural Person, as a
Legal Person and as a Private Entrepreneur as well.
Civil Code Chapter 49 – ‘Bank Deposit’, 28
Chapter 50 – ‘Bank Account’
 Regulation

• Contract btw Bank and You  READ IT BEFORE

SIGNING!!!
• Civil Code of Armenia, Chapter 49
(https://www.ilo.org/dyn/natlex/docs/ELECTRONIC/83647/92
533/F1027892254/ARM83647.pdf)
• Law on Attracting Deposits
(https://www.cba.am/EN/lalaws/deposit_law__29.06.09.pdf)
• Regulation 8/02 on the Calculation of Annual Percentage
Yield of Bank Deposits
(https://www.cba.am/EN/laregulations/Regulation_8.02.pdf)
• Law on Guarantee of remuneration of banking deposits of
physical persons

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YOUR RIGHTS

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 Your Rights – DISCLOSURE

 Bank is obliged to provide with information:

• Before contract  oral and written, information bulletin
• During contract  minimum monthly statement
• After contract  written, about closure
 Complaints if any misbehave by bank
• to bank, Mediator office, CBA, court
 Banks MUST disclose all information on
• Official web site
• Place of operation
• Other
•Advertisement and other disclosed information MUST be
• accurate, simple and not misleading  if not do your civil
responsibility and inform CBA
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 Your Rights – DATA SECRECY

• The bank guaranties secrecy of the bank account

and bank deposit, and of operations on the account
and information on the client  never exposed to
third parties (Civil Code of Armenia, RA Law on
Bank Secrecy)

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Financial TIPS

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 Some advices, lessons learned
Before
Compare:
Access to money (Money that is saved for an emergency and/or a
short-term financial purpose should be easily and readily accessible,
choose current account for it)
Rate of return (Nominal Int. rate and APY)
Carefully explore all services and fees linked to your deposit:
Debit Card
Service fees …
Diversify your savings!
Read Contracts Carefully Before Signing! Take your copy!
After
Keep your contract, statements organized and safe!
Carefully investigate your statements!
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 SAVE!
Some good RULES:
It is never too late to start saving and no amount is too small
Just be persistent and patient
Don’t forget, you save also through reasonable spending
When you adjust your wishes and needs to the possibilities
you will always have enough for savings

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Summing up

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 SUMMARIZING

Savings are important for independence, stable

future
Triangle – Return, Liquidity and Safety
Savings can be done different ways – deposit,
cash, gold, real estate, …
The least beneficial is Cash
Better Deposit or other ways
…

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 SUMMARIZING

Interest Rate (Simple, Compounding, Payment Frequency)

APY
Armenian Deposit Guarantee Fund
Diversification
Regulation
Rights protection
 Compare before buying = shop around
 too high interests may be sigh of scam/fraud
…..

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PRACTICING

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HOMEWORK

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 HOMEWORK: due 12 September

Read Civil Code Chapter 49

(source: www.arlis.am , www.parliament.am, www.cba.am )
(https://www.ilo.org/dyn/natlex/docs/ELECTRONIC/83647/9
2533/F1027892254/ARM83647.pdf)

Let’s suppose you saved AMD 1 000 000 money.

Choose 3 “places” in details (institutions, interest rate, type
of interest rate (simple, compounding), time period,
currency …) where you will put your savings!

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 HOMEWORK: Savings due 12 September

Find out the APY (www.abcfinance.am

Deposit calculator) for AMD 500 000, 14%
annual nominal rate, 24 months, other
payments AMD 3000, Compounding
frequency semiannually!
Read: www.abcfinance.am Financial
services, Deposit!

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 Comparing savings options - Triangle

Return Safety Liquidity

Cash at Home

Demand Deposit

Term Deposit

Gold

Real Estate

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