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I've been thinking about deposits and bonds. I live in Russia, and here some trustworthy banks offer deposits at the rate of 14.5% a year, and the interest is paid every month. The interests of Russian bond coupons vary, but on usual bond interest equals around 15-15.5% a year. As we all know, bond coupons are paid twice a year.

My question is the following: is it actually worth buying bonds in Russia instead of opening a bank deposit? After all, monthly interest results in higher compound interest in long-term investing than quarterly interest payments, doesn't it?

Rodrigo de Azevedo
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Жёлудь-мистэ́р
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1 Answers1

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It depends on your expectations of interest change. In the environment where interest rates go up you'd prefer the short term rates of the bank account since there's much higher likelihood of those following the trend and going up. Or, if they don't, you can easily move the funds to another bank which does pay more.

Bonds on the other hand usually have fixed interest, so they're more useful in the environment of interest going down or high volatility - you fix the higher rate while the bank account rates could go down over time. This comes at the price of liquidity - you may not be able to access the cash and redeem the bond at short notice (or sustain a significant loss).

littleadv
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