Quality higher education is a condition for a child's future successful life that parents can provide. Every parent plans their child's future using all available resources, but these are not always readily available. Kursiv Research examined the educational deposit developed under the state educational savings program and compared the conditions of second-tier banks offering this product.
Children are the foundation of our country's future. Choosing quality education provides the younger generation with a sure path to high achievements. It is a parent's duty to think in advance about how to give a child the opportunity for a decent education. Preparing savings for education expenses must indeed start early, and both the state and local banks facilitate this.
Under the state educational development program of the Republic of Kazakhstan for 2011-2020, initiated by the President of the country N.A. Nazarbayev, the Law of the Republic of Kazakhstan "On the State Educational Savings System" was signed on January 14, 2013, which allows any citizen of Kazakhstan to open an educational savings deposit in their name or their child's name, which can later be used for the payment of professional-technical and higher education.
The program provides the opportunity to methodically accumulate funds to pay for the future education of children in Kazakhstani and foreign educational institutions.
A feature of the educational savings deposit is that in addition to the bank's remuneration, a state bonus is also accrued on the educational deposit. This, in turn, is the main difference between this deposit and other types of deposits.
Depositors from vulnerable groups fall into the priority category and are entitled to a state bonus of 7%. Specifically, this includes orphans, children with disabilities, children from low-income families, and children from large families. Other depositors can expect a 5% bonus, which is accrued on the total accumulated amount at the end of each year. Thus, taking into account the state bonus, the educational deposit is the most profitable deposit currently in Kazakhstan.
According to a representative of the official program operator JSC "Financial Center" Gaukhar Zharilgassova, the Law of the Republic of Kazakhstan "On the State Educational Savings System" provides for the possibility of the depositor obtaining an educational loan with 100% guarantee from JSC "Financial Center" if 50% of the amount needed for the entire period of study is accumulated.
In the first year of the program, 2013, only 700 deposits were opened. As of today, according to a JSC "Financial Center" employee, more than 17,000 educational savings deposits have been registered. The total amount of savings today exceeds 11.5 billion tenge. Moreover, 277 people are already using the deposit for its intended purpose and are studying in various universities and colleges of Kazakhstan.
Initially, the deposit could be opened in four banks: JSC "Temirbank", JSC "BTA Bank", JSC "Halyk Bank of Kazakhstan", and JSC "Tsesnabank". However, due to changes in the country's banking sector structure, today, three banks effectively offer the educational deposit among the five participants: these are Halyk Bank, Tsesnabank, and Nurbank.
Recently, deputies of the Mazhilis discussed a draft law "On Amendments and Additions to Some Legislative Acts of the Republic of Kazakhstan on Issues of the State Educational Savings System," suggesting increasing the number of banks participating in the state educational savings system by eliminating the requirement for branches in regional centers and Astana and Almaty.
"By the end of 2013, JSC "Nurbank" and JSC "Financial Center" signed a cooperation agreement in the field of the state educational savings system," says Chairman of the Management Board of Nurbank Eldar Sarsenov. "After signing the agreement, work was carried out to implement the system in the bank, meaning the technical side of the whole process. The task was to merge the database and the state body into a single information system. As a result, in July 2015, the first educational deposit was registered at JSC "Nurbank."
As practice has shown, this type of deposit has become a highly demanded financial instrument among the population, designed for prospects, noted Mr. Sarsenov. The number of depositors who opened educational deposits in our bank is rapidly growing. "For comparison, in 2015, the number of depositors with an educational deposit at Nurbank was about 50 people, whereas today, their number has increased to 800 depositors," he noted.
The "Tsensna-Bolashak" educational savings deposit from Tsesnabank is popular among the category of clients who consciously and purposefully want to start saving for their children's education now. As of April 1, 2017, about four thousand educational deposits were opened in Tsesnabank.
The deposit conditions under this program are approximately the same across all banks. This type of deposit does not allow partial withdrawal, except for targeted withdrawal of money in favor of an educational organization. At the same time, the deposit is not cashed out by the client but is directly transferred to the institution's settlement account.
In the event of early termination of the deposit or its use not for its intended purpose, the state bonus is forfeited. Here there are some differences in the bank's conditions for accruing remuneration. For example, in Nurbank and Tsesnabank, in case of early termination, the depositor receives their savings with capitalized remuneration, whereas in Halyk Bank, the remuneration is accrued without capitalization.
However, it is worth noting that if the depositor receives an educational grant, the state bonus is retained, and the depositor has the right to manage the accumulated amount at their discretion, including cashing out the deposit, transferring it in favor of third parties, which can become an additional incentive for a high school student.
The client can set the frequency and amount of deposit replenishment. The exception is Halyk Bank's requirement to deposit an amount no less than 10,000 tenge, but, like in other participating banks, at any convenient time for the depositor. The minimum deposit in Nurbank and Tsesnabank will be 3 MCI or 6,807 tenge, at Halyk Bank you can open a deposit from 15,000 tenge. This deposit is covered by deposit insurance for individuals up to 10 million tenge.
The only significant difference when choosing a second-tier bank to open an educational deposit is the interest rate.
Currently, JSC "Nurbank" offers its clients an annual nominal remuneration rate of 13.2% and an effective rate of up to 14%, the maximum allowed level according to KFGD requirements. Tsesnabank's remuneration rate is 12.7% per annum (13.5% APR), and Halyk Bank's is 12.5% per annum (13.4% APR). All three banks provide for monthly capitalization of remuneration.
"We pay special attention to our depositors, and this type of product is a priority among deposit products. Therefore, we offer citizens wishing to open a deposit more favorable conditions among participating banks in the state educational savings system," emphasized Eldar Sarsenov.
To visually assess the profitability of the instrument, we provide an example. Suppose, we take a deposit for a period of 5 years for the amount of 100 thousand tenge without additional replenishments. The accumulated amount for the year includes the bank’s remuneration at the nominal rate with monthly reward and the state bonus; next year's interest will already be accrued on this amount (Table 1).
Table 1. Example of opening an educational deposit in banks: Nurbank, Tsesnabank, Halyk Bank of Kazakhstan
According to the calculations, the initial deposit amount over 5 years, taking into account the state bonus, will more than double. Moreover, the actual annual yield on average will be 22.4% for Nurbank, 21.7% for Tsesnabank, and 21.4% for Halyk Bank.
From Table 1, it can be seen that it is most profitable to open such a deposit at Nurbank.
Disclaimer
Kursiv Research notes that the above material is for informational purposes only and does not constitute an offer or recommendation to conduct any transactions with the securities or other assets of the mentioned organizations.