The bank deposits of households in Estonia stood at EUR 9.6 billion in February. An average of 112 million euros a month have been added to bank deposits over the past 12 months, meaning household deposits have grown by over 16% in a year. The average monthly growth in deposits was half that much before the first pandemic restrictions were introduced in March 2020.
“Although it has become harder for people who have lost their jobs to save, the rapid growth in deposits was to be expected with the economy facing difficulties. People generally become more cautious when faced with economic uncertainty, and this encourages them to save if they feel there to be a risk of a drop in income. Large expenses are in consequence postponed, and people hold on to what they have. The restrictions introduced because of the pandemic have also led to forced saving, as it has been harder to spend money on travelling, entertainment and shopping over the past year,” says Raido Kraavik, Economist at the Central Bank of Estonia (Eesti Pank).
A large amount was added to household deposits last spring during the first set of pandemic restrictions. Economic activity recovered quickly in the summer and saving at that time was not significantly different from what it was in earlier years. Deposits have again grown very fast since the end of last year however. One-off factors on top of the coronavirus restrictions have increased saving. Many of those who had reached retirement age or were soon to do so took advantage of the option introduced by the pension reform to make a lump sum withdrawal from their pension fund at a better rate. When money saved up for pensions is paid out in September to those who are leaving the second pillar, an increase in bank deposits may again be expected.
The bank deposits of Estonian companies have also grown rapidly, increasing by 24% over the year to total 8.7 billion euros. Corporate deposits have grown partly because investment in fixed assets has been postponed given the general uncertainty. Many businesses have succeeded in maintaining their incomes at the same time. The rate of growth of deposits in a small country can also be affected by individual large financial transactions.
“The deposits of households and companies have also grown strongly in other European Union countries. The growth in Estonia has been faster than the average, and this has increased the buffers that will help in coming through the economic difficulties. The increased deposits could also help economic activity to revive faster once the Covid-19 restrictions and general uncertainty have subsided,” says Kraavik.
