Are one-year certificates gone for good? Not yet

One-year savings certificates are fading away as banks reposition for lower rates. Having leaned on short-term certificates with exceptional yields during the tightening cycle to pull in liquidity, banks are now less inclined to lock in high deposit costs for a year as further cuts loom. But bankers and analysts tell EnterpriseAM that the disappearance of one-year savings certificates is a transitional phase tied to the monetary easing cycle and rate expectations, not a permanent shift in local banks’ strategy.

Competition has moved to three-year certificates: Banks are steering savers toward three-year variable-rate certificates that reprice down as the CBE cuts — the National Bank of Egypt and Banque Misr rolled one out at 19.25%, pegged to the overnight deposit rate plus 25 bps, which sheds cost for the bank with each cut rather than locking in a high fixed yield. CIB, Egypt's largest private-sector bank, also raised its three-year fixed-rate certificate by 0.5 pp last week to 18% — below the exceptional yields the vanished one-year certificates carried — a retention play to hold savers who still want to lock in a rate before cuts deepen.

Filling the gap left by vanishing one-year certificates: CIB is taking a different route, having just introduced a 12-month EGP time deposit paying up to 17% annually, with a minimum balance of EGP 5k, per a customer notice released yesterday and seen by EnterpriseAM. Another option is the Citizen Bond — the government launched two issuances of the bond in February, offering retail savers a fixed 17.75% over 18 months. The Finance Ministry opted for the 18-month tenor after finding no comparable product in the banking sector, a senior government source previously told EnterpriseAM.

A transitional phase

The disappearance of annual certificates “doesn’t reflect a structural shift in banks’ strategy, but rather a transitional phase linked to the current monetary policy cycle and interest rate expectations,” says banking analyst Mohamed Abdel Moneim. Banks are working to “reduce their average cost of funds in line with declining interest rates and give themselves greater flexibility to reprice deposits with each new rate cut, rather than being locked into a high yield for a full year,” he explains, adding that long-term certificates “enjoy exemptions from the reserve requirement ratio, which gives banks greater freedom and pricing power.”

Why banks favor longer tenors: “The primary purpose of issuing savings certificates is to provide long-term funding sources,” says AASTMT economics professor Shaimaa Wagieh, with short-term deposits still serving short-term needs. Issuing high-yield short-term certificates is the exception, not the rule, she says, since it “represents a high funding cost for commercial banks and limits their ability to generate [income].” Veteran banker and EG Bank board member Mohamed Abdel Aal says the CBE introduced three-year certificates to “build a base of long-term deposits at banks and fund medium- and long-term credit, while avoiding a mismatch between asset and liability maturities.”

High-yield one-year certificates were never part of the traditional structure — they came in during the 2022/23 inflation spike, when price hikes hit around 38% and real returns turned negative, Abdel Aal says. He calls them a positive trap: “Someone who invested for a year at a 30% yield found themselves, upon renewal, facing much lower interest rates,” while those who locked into three-year certificates at 23% came out ahead as inflation eased.

Far from target

Is this a savings gap? Veteran banker and former Banque Misr deputy chair Sahar El Damaty doesn’t see one, pointing to “a significant degree of diversity that covers different investment needs and preferences.” She argues a longer lock-in may suit some savers, saying “the longer the investment term, the better it is for an investor looking to lock in a high yield,” and notes “the central bank remains far from its 7% (±2 pp) inflation target,” meaning the easing cycle has far to run.

The CBE held rates steady for a third straight meeting last week, with headline inflation easing to 14.3% y-o-y in June from 14.6% in May — even turning negative m-o-m at -0.4% — while core inflation ticked up to 14.3% y-o-y from 13.8%, on what the bank called “an unfavorable base effect.” It expects headline inflation to accelerate through 3Q 2026, before easing back to single digits and hitting its 7% (±2 pp) target in 2H 2027.

Could one-year certificates come back? Yes, but only under exceptional conditions. Abdel Aal lays out three: “Inflation running high enough to exceed deposit interest rates; real returns turning negative; and the central bank being confident that inflation will decline going forward.” Abdel Moneim expects one-year CDs to return again “if the market sees a new cycle of rising interest rates, or if banks need to attract additional liquidity.”

What’s next: “Competition between banks won’t be based on certificate and deposit rates the way it used to be — it will shift toward the quality of services offered to customers and more advanced, secure digital services,” Abdel Aal says.