Serbian banks: some of Europe’s highest interest rates

Written by Andrew Henderson

Dateline: Belgrade, Serbia

Over the centuries, Belgrade has been the seat or the conquest of numerous empires. In the late Middle Ages, the Serbian Empire was overthrown by the Ottoman Turks who were pushing further west into Europe. Later, the Ottomans would sign their rights away to the Austrians.

Of course, it was 100 years ago next month that the crown prince of Austria was assassinated in Sarajevo, then part of the Serbian kingdom. And we all know the history of communist Yugoslavia, including the wars of Slobodan Milošević in recent years. Since then, the lines on the map have changed, giving birth to new nations like Montenegro and the quasi-disputed breakaway state of Kosovo.

Today, Belgrade is more bustling than many would think considering the tragic history in this part of the world.

For one thing, Serbia’s position in southeastern Europe – on par with Italy or Spain – means the climate here is better than most of the rest of Europe.

Keeping with the more laid back cultures of much of southern Europe, Serbians are rather friendly and outgoing. Service isn’t up to American-level standards of fawning but isn’t horrible.

If you’re a single man, you won’t be able to miss what seems like another shapely model walking by every thirty seconds.

And as it turns out, Serbia is home to some of Europe’s highest interest rates on bank deposits.

Belgrade is overrun with banks – mostly local branches of foreign banks – offering high interest on accounts in the local currency, the Serbian dinar.

For example, the average one-year CD here pays around 8% a year. If you’re willing to keep your money in the bank for three years, you can earn upwards of 9% in some cases.

Serbian banks are under regulations that make it next to impossible to renew a term deposit without visiting the branch, so those who don’t plan on living here and are depositing long-term funds may want to consider a longer-term,

Serbian banks include the likes of Raiffeisen (Austria), Societe Generale (France), the local KOM Bank, as well as various Italian and Greek banks like Banca Intesa, Alpha Bank, and Piraeus Bank. In total, there are more than thirty banks for this country of barely seven million people.

With all of those European banks doing business here, it would be reasonable to think that Serbian banks would offer the multi-currency accounts that are so prominent in the European Union.

And you’d be correct. If you don’t wish to earn high interest rates banking in Serbian dinars, you can avail yourself of any number of other currencies. Most banks offer Euros, US dollars, Canadian dollars, and a number of other currencies.

Of course, interest rates are nowhere near the dinar rates, but even a US dollar term deposit hit the 2% level. Not that I’d put Serbia on my short-list for dollar deposits.

However, savings accounts and term deposits denominated in Serbian dinars have an added advantage: they’re tax-free.

While foreign currency accounts are subject to Serbia’s 15% flat tax, interest earned on Serbian dinar deposits don’t require any payment of tax – at least locally. Your home country will demand their cut of your interest income, but Serbia will not.

Of course, there are some risks to banking in Serbia.

Serbian dinar

Serbia’s currency, the Serbian dinar, has stabilized a bit after losing nearly a quarter of its value to the Euro in the years since the global recession hit emerging markets hard

If you’re the type that worries about deposit insurance, you should know that Serbia does have an insurance fund for failed banks. In the last two or three years, two small banks have failed here without much consequence.

Heck, the five largest banks barely control 40% of the market.

Serbia’s insurance fund covers deposits based on their value in foreign currency – specifically, the Euro. Each depositor receives 50,000 euros of coverage per bank, half the top limit in European Union banks.

Of course, Serbia is not part of the European Union and they can’t play the shell games that EU countries have been able to get away with. Although after Cyprus, bank stability in the EU has to be called into question.

The other risk in Serbia is the currency. Over the last five years, the dinar has lost about 22% of its value against the Euro. As an emerging European economy, inflation is more of a concern here, although it recently settled down.

However, most large deals in Serbia are priced in Euros, a hat tip to the low valuation of the dinar. Buy a car and you’ll price it in Euros. It’s a system that has been going on since the days Serbians in Yugoslavia used the Deutsche mark to battle the country’s currency issues.

The lower-cost European Union countries that also don’t have the Euro – Poland and Hungary among them – have had issues with wealth confiscation as of late. Hungary’s government has been extremely aggressive in going after the banks for issuing loans in foreign currencies that borrowers now can not pay back.

Poland recently confiscated private pension funds.

Serbia may not have the backing of the EU, but I might be tempted to trust them more than some of their EU neighbors.

One of the people I spoke with here in Belgrade playfully called these problematic countries “fancy”, for their highfalutin attitude since accession to the EU. That said, we agreed that even member countries in this region have their share of challenges.

Some outside observers might take issue with any support for Serbia, citing low return on equity in Serbian banks. However, the figures can be misleading: take the country’s two small failed banks and the rather poorly run state banks out of the equation and results suddenly look much better.

I can’t say bank service is great here in Serbia, although there are a few banks that are easier than others. I spent hours at one bank only to be told to come back the next day after completing paperwork as a “politically exposed person” (thanks, FATCA).

Then, I was told they couldn’t help me. Other banks were easier to deal with if you followed their demands. I wrote about the specific banks I would recommend based on their balance sheets and my experiences in a recent blog post for Members of The Nomad Society.

In fact, we’re in the process of writing Wiki-style articles on every “flag” opportunity in all of the countries I’ve been to. This way, our Members will be able to research what opportunities exist in one country, from living to banking to residency to citizenship. If you’re not one of our premium Members, you should definitely apply today.

While I’m not saying that Serbia is the world’s new banking safe haven, it is an interesting example of the opportunities available in the truly emerging part of Europe.

While Polish people were extremely welcoming and Budapest is perhaps Europe’s most beautiful city, cities in those countries are better for their low cost of living and easy travel access.

Balkan countries like Serbia are where the potential huge gains in Europe lie for emerging market investors and entrepreneurs.

If you fancy a play on emerging Europe, Serbia may be worth investigating. If you’re looking for a play on possible future EU ascension, the conventional wisdom is that Montenegro is further along than Serbia, although both countries have some challenges ahead of them.

The good news for Serbia is that is has a larger, more diverse economy. Also, it is free from the large Russian influence that seems to have practically swallowed the young Montenegro, which already uses the Euro anyway.

Andrew Henderson
Last updated: Dec 29, 2019 at 5:06AM

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