Do you understand the distinction between CDI and Selic?

You might be familiar with CDI and Selic, but understanding their practical significance may be unclear. Despite the financial market providing appealing investment prospects for those seeking to grow their income, many novice investors find it daunting and hard to access.

CDI and Selic are commonly used terms in the investment world, understanding their meaning and differences is crucial for maximizing investment opportunities.

In this article, we will clarify the distinction between CDI and Selic.

What is the selic rate?

The term Selic stands for Special Liquidation and Custody System, which involves handling and recording details about federal public bonds, including their registration, safekeeping, and processing.

Companies use the Selic rate as a benchmark to calculate interest for loans, financing, and installment purchases, as well as for investment returns in options like the Direct Treasury and specific Bank Deposit Certificates (CDBs).

This rate pertains to financial transactions among banks that take place over a brief period, typically within a day. For instance, if a bank needs to adjust its cash flow by the end of the day, it may borrow from another bank using National Treasury bonds, with the interest rate being the Selic rate.

The Selic Treasury’s earnings are tied to the Selic rate. As the rate rises, so do the returns, while a decrease in the rate leads to lower profits without affecting the initial investment.

The Selic rate also impacts other investment options.

Real estate investment funds

These funds gather investor funds for purchasing real estate and earning income from rental payments. Some funds also provide resources for financial institutions to offer real estate loans.

The impact of the Selic rate varies based on its level, leading to varying degrees of benefits for different types of funds.

Investment funds are financial products used for investing.

Fluctuations in the Selic and CDI rates impact the profitability of these funds, as they typically invest in businesses providing credit and financing across various industries.

Banks and financial institutions earn more profits when the interest rate is high because loans become more profitable.

Deeds

Bank stocks and financial firms may appeal to a larger number of investors due to the potential for increased interest rates. Additionally, businesses reliant on imports could be drawn to such investments, as a higher Selic rate typically leads to a stronger Brazilian real against the US dollar, thereby lowering import expenses.

CDI acronym

The CDI is utilized in daily interbank loans to maintain financial stability as mandated by the Central Bank.

The CDI rate, which serves as a benchmark for earnings in digital accounts, is influenced by the typical interest rates on such loans. Investment options connected to the CDI comprise LCIs, LCAs, debentures, and fixed income funds.

When are the meetings scheduled to decide on the Selic interest rate?

The Copom, which is the Monetary Policy Committee of the Central Bank of Brazil, determines the Selic rate. It convenes eight times a year for this purpose, and each meeting typically influences the financial market significantly. Therefore, it is crucial to monitor the meeting dates closely.

The Monetary Policy Committee meetings that set the Selic rate take place every 45 days and last for two days each.

Copom schedule for 2025

What does CDI rate refer to?

The CDI is similar to Selic, but it is not tied to the federal government as it doesn’t include public securities.

The abbreviation stands for Interbank Deposit Certificate, and in essence, the CDB involves investments between individuals and financial institutions, whereas the CDI is solely between banks, hence the term ‘interbank’ in its name.

The CDI is linked to private banking activities and acts as a benchmark in private sector investments.

The DI fee is the mean interest rate on interbank deposits and is revised daily by Cetip, with the updated value published on the B3 website.

What sets CDI apart from Selic?

CDI and Selic rates typically have comparable values and track similar trends, but they are distinct. What sets CDI apart from Selic?

The CDI typically has a slightly lower rate compared to the Selic rate because it involves private bonds with higher risk than government bonds. This means that if Selic is at 13.75%, the CDI rate is usually around 13.65% to 13.70% per year.

The DI fee is revised daily, so the CDI rate can change over time despite the consistent proximity to the Selic rate.

What is the connection between Selic and CDI?

Selic is not only the benchmark rate for credit transactions but also determines the interest rates for interbank transactions, leading to the calculation of the CDI rate.

The CDI moves in line with changes in the Selic rate, as fluctuations in Selic lead banks to modify the interest rates involved in these transactions, thereby affecting the CDI.

Selic or CDI: which one offers higher returns?

It is typical to wonder which option provides higher profits after grasping the connection between Selic and CDI. The outcome varies depending on the investment type.

The CDI rate is typically slightly lower than the Selic rate, as it aims to equalize daily interbank loans.

Selic doesn’t always surrender more, that’s not always the case.

Some investments yield over 100% of the CDI and may outperform the Selic rate.

How do CDI and Selic influence my investments?

CDI and Selic rates can have a direct impact on fixed-income investments, affecting individuals who have invested in them.

The effects of their decline or increase also impact individual investors, despite being connected to financial institutions’ operations. Just think of investments as a form of repayment to understand.

When you invest money in a bank, you are essentially entrusting it to the bank, and they return it to you with interest after a set period of time.

The performance of your investment depends on the levels of CDI and Selic rates. Higher rates will result in greater returns, while lower rates will lead to lower returns across different types of investments.

If the Selic rate decreases, it may not be advisable to invest in fixed-income assets such as Direct Treasury, but this is not always the case.

To determine the optimal moment for investment in relation to the Selic rate, it is essential to have a basic grasp of inflation.

The connection between the Selic rate and inflation

The Selic rate and inflation are closely linked. In cases of significant inflation increase, the government typically raises the Selic rate in an attempt to manage it.

An increase in the Selic rate leads to a rise in interest rates overall because it is the primary interest rate that affects other rates in the economy.

When interest rates are high, people tend to purchase fewer items, which can lead to lower prices and slightly higher inflation.

When inflation is low, the government can decrease the Selic rate to boost purchasing and the economy.

In this scenario, the crucial factor is the variance between inflation and the Selic rate. If both rates are high, it does not guarantee that investment profits will be significant. For instance, a 10% Selic rate may seem high, but if inflation stands at 7%, the gap between the two rates would be 3%.

If the Selic rate is 6% and inflation is 2%, the gap between them would be 4%, resulting in slightly higher profit despite the lower rate.

Difference between fixed income and variable income.

Fixed-income investments are investments where the investor can predict the exact return based on the initial investment after a set period.

Fixed-income investments are viewed as less risky due to their predictability, such as investing in savings.

In variable income investments, it is uncertain whether or when returns may be realized.

Variable income investments are seen as riskier due to factors beyond control like the assessment of an action, but their volatility also presents the opportunity for higher profits.

Understanding the distinction between CDI and Selic is crucial when discussing fixed-income investments as it directly impacts the returns gained from investments like savings, CDB, and Direct Treasury.

How can CDI and Selic rates be utilized to enhance investment decisions?

CDI and Selic rates significantly impact the returns of fixed-income investments like Direct Treasury and CDB, causing confusion for novice investors unsure about the merit of investing based on these rates.

There is no definitive answer to which type of investment is the best or worst, as it varies based on your goals, available funds, and desired timeline for returns.

Investing affected by CDI and Selic will also be influenced by additional factors.

It is crucial to fully comprehend the significance of these rates and their impact on investments, market trends, and the overall economy in order to make well-informed decisions regarding your investments.

In summary

CDI and Selic are two significant indicators in the Brazilian financial market, each fulfilling unique functions.

Understanding the distinction between these rates is important for individuals seeking to make better decisions about investments and funding. Various financial tools utilize the CDI as a measure of profit potential, underscoring the significance of monitoring both indicators.

By monitoring the fluctuations of Selic and CDI, one can gain insight into how these rates affect investment returns and the overall economy. This awareness can assist in selecting financial tactics that are more in line with your objectives.