With an annual nominal interest rate of 75% and an annual effective rate of 107%, the Central Bank has resolved for now to keep these yields unchanged, waiting to know the evolution inflationary during the first quarter of this year.
As long as the indicators of the last few months are maintained, the traditional fixed term seems a good alternative to hedge the pesos against inflation: as long as it remains below 6% per month (January would result in around 5.4%, according to the estimates that are beginning to emerge from private consultants) the 6.25% monthly yield offered by the fixed term is for now an “umbrella” (we are not going to use metaphors of “blankets” in the middle of summer) in the face of the sweltering inflationary heat.
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The youtuber Ariel, expert in personal finance and generous disseminator of alternatives to consider when saving or investing, from his channel “Financial Heart”, On this occasion, it offers us a practical guide to avoid making mistakes, simple but important, when thinking about a fixed term or when buying dollars.
The most common mistakes
According to the expert, a common mistake among those who begin to internalize the culture of savings or simple financial alternatives is not to carry out “compound interest”, which results in a significant loss of returns.
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For example, if someone is thinking of saving 500,000 pesos that they intend to save throughout this year, waiting to raise more capital for a project, they will have a much lower return if they make a one-year deposit, compared to what they could obtain by doing so 30 days, with monthly principal and interest renewals.
In this fixed-term yield calculator you can know the difference, more than important, that produces one and another modality. As can be seen when entering the data, for a fixed term placed directly for one year, the return would be 375,000 pesos, equivalent to 75%. However, if we compound interest, renewing the capital plus the interest generated every 30 days, the result is very different, since amounts to $535,000 pesos, equivalent to 107% of the Effective Annual Rate.
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According to the example, who opted for the one-year placement, instead of the monthly renewals of capital plus interest (this is what is called “compound interest”), I would be losing to win about 160,000 pesos.
“Someone can tell me that the rate could drop over the course of a year and I miss the opportunity to have made the 365-day placement with a higher rate -Ariel acknowledges in his explanation-, but it must be taken into account that a possible drop in the rate would be very gradual and not exponential.”
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Fixed term in dollars: Is it convenient or not?
In our country it is very common to think of the dollar as a savings instrument or a reserve of value against inflation, although the returns are not always important. As we reflected in a previous report in this section, the parallel dollar did not perform better throughout 2022, although so far in 2023 it has had a significant recovery.
However, even taking into account the closure last Thursday in Comodoro Rivadavia, when the ‘blue’ reached $387, that price represents an 88% increase compared to the price of January 3 of last year: shortly after the end of January, it still does not match last year’s inflation of 95%.
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Even so, for those who opt for the dollar as a safeguard, the advice of YouTuber Ariel may be useful, explaining that It is not convenient to place these notes in a fixed term:
“Another mistake is to place a fixed term in dollars,” explained the analyst. If we use the BNA simulator for Fixed Term in dollars and assume a capital of 1,000 dollars at 30 days, the calculation is made and gives us 0.50% interest. You only earned 41 cents in 30 days, not even half a dollar.”
Thus, the alternative is not advisable, so another suggestion is to analyze the variant of inpour in a Common Investment Fund in dollars, that it will offer a better return, although that type of operation offers an income equities, which means that there is a possibility that the instrument will go up, but also that it will go down.
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This instrument, which is sometimes confused with the fixed term in dollars, according to the analyst, requires another type of analysis, taking into account the investor’s profile and knowing in greater detail what the risks are with respect to this type of modality.
“The ‘carry trade’ is not for everyone”
The so-called ‘carry trade’ is the maneuver carried out by some savers, going from pesos to dollars, successively. In other words, dollars are sold when the price remains stable and a fixed term is established with the pesos obtained, in order to buy US bills again with the yield obtained.
As long as the price remains stable, the operation can give good results, as happened between January and early June of last year, when the fluctuation of the blue dollar varied between 206 and 196 pesos, until it began to rise in June.
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When there is a jump, things get complicated, as happened between June 27 and the end of July. In that period, the parallel dollar went from 230 to 338 pesos in just one month. “If you did a carry trade on that date, you lost like in the war,” Ariel pointed out. Then there was another stable period, after the assumption of Massa, until he jumped again at the beginning of January of this year. It must be taken into account that if the price rises strongly, the performance gives you zero, or it can even give you losses”.
As a conclusion on this point, the specialist affirmed that “the “carry trade is not for everyone, you have to know when to do it, although sometimes the temptations can be very strong”.
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For example, if a saver carried out a ‘carry trade’ between December 27 and January 27, they clearly lost. With $1,000, around the end of December last, he was able to get 346,000 pesos, when the price of the blue was $346. When placing the fixed term, 30 days later the yield was 367,625 (the monthly rate is 6.25%), but when trying to spend dollars again, at $387, he was able to recover only 950 dollars.
Instead, the same operation was positive in several periods of last year. For example, if he did it on September 6, with a price of 276 pesos, the return on the fixed term (after selling the same 1,000 dollars at $276) a month later would have been able to repurchase 1,058 dollars, since in that period the price rose only one peso.
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In large volumes of operations, the losses and profits can be more than important. There are other errors that may occur when making decisions in fixed-term and dollar operations, linked to the insurance that can be contracted, the placement above 10 million pesos or even some precautions that must be taken with the UVA fixed term. For those who want to see the complete video of the “Corazón Financiero” channel and take note of other precautions to take into account, we leave you the complete link at the end. Until next time.
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