Increase in deposit withholding tax rates: Which options will investors turn to?

In the first months of 2024, banks offered attractive deals to depositors with high interest rates. However, in the final quarter of the year, a decline in deposit interest rates was observed as the Central Bank began cutting rates.

Currently, interest rates ranging from 35 percent to 49.5 percent are being offered in the market. However, as the interest rate cut process continues, it is observed that banks are setting lower rates for long-term deposits.

NEW RATES IN DEPOSIT WITHHOLDING TAX

According to the regulation published in the Official Gazette, the withholding tax rates applied to deposit earnings have been increased. The new rates are as follows:

Deposits with a maturity of up to 6 months: 10 percent › 15 percent

Deposits with a maturity of up to 1 year: 7.5 percent › 12 percent

Deposits with a maturity of longer than 1 year: 5 percent › 10 percent

While this regulation increases the tax deducted from deposit earnings, it may reduce net interest income.

WITHHOLDING TAX ADVANTAGE CONTINUES FOR STOCK FUNDS

Withholding tax rates for money market, debt instrument, and precious metal funds have also been increased:

Money market funds: 10 percent › 15 percent

Variable funds: 10 percent › 15 percent

Precious metal funds: 10 percent › 15 percent

Fund basket funds: 7.5 percent › 12 percent

However, the withholding tax rate for stock funds will continue to be applied at 0%.

WHAT IS THE MONTHLY RETURN ON A 1 MILLION TL DEPOSIT?

With the new interest rates, the monthly net return on a 1 million TL deposit is hovering around the 35 thousand - 39 thousand TL level.

As net earnings decrease following the withholding tax hike, investors may begin to exit deposits and turn toward stock funds.

WHERE WILL THE MONEY LEAVING DEPOSITS GO?

With the increase in withholding tax rates and the decline in interest rates, investors are expected to turn to alternative instruments.

According to Certified Public Accountant and Economist Muhammet Bayram:

Even though deposit interest rates continue to be attractive, stock funds are becoming more profitable because they provide a tax advantage.

Since the Currency Protected Deposit (KKM) scheme will end at the end of 2025, investor interest in the stock market and stock funds will increase.

WHAT IS THE MOST PROFITABLE STRATEGY FOR DEPOSITORS?

According to economists, depositors can obtain higher returns by investing their money in short-term deposits during the interest rate cut process.

Recommended method:

Obtaining deposit returns on 32-day maturities and reinvesting in the same maturity once it expires

Taking advantage of the tax benefit by turning to the stock market and stock funds

HOW WILL DEPOSIT INVESTMENTS BE SHAPED IN THE NEW PERIOD?

With the withholding tax increase, options for investors are narrowing. However, TL deposits, which still provide a real return between 35 percent and 40 percent, continue to be a safe haven.

Nevertheless, in the long term, the stock market, stock funds, and foreign currency-based investments are expected to become more attractive. It is predicted that the first destination for money leaving deposits will be Borsa Istanbul.

News Source: 12punto