It is what a person will do with the saved money that will make a big difference in his or her finances – H.J. Chammas [Author, The Employee Millionnaire]
The recent circular from the Central Bank of Nigeria got a number of people initially excited when they first, erroneously, interpreted that the savings rate would be 10%. It is easy to see why this happened, especially if you are not able to interpret the financial jargon in the document.
What is very important in the document is that the lowest savings rate that your bank can offer you on your savings bank deposit shall be, 10% per annum of whatever is the Monetary Policy Rate. it means you need to know what the Monetary Policy Rate [MPR] is. If the MPR was 100% (thank God it isnt!], then 10% of 100 is 10%. Only then, would the savings rate be 10%.
However, since the MPR is 12.5%, then 10% of this is 1.25%. As such, the minimum savings rate your bank can offer you is 1.25% Interesting to note is, the savings rate used to hover about 3% for most banks, but even then, there was a requirement to not withdraw more than 4 times from your savings account in a month to be eligible to earn this savings rate. The minute you make the 5th withdrawal, you forfeit your savings interest for that month. Chances are, you already do not ‘see’ this interest in your account if you use this account for your daily expenses, transfers, etc.
And now, Big Brother CBN just told the banks they do not have to be under pressure to offer you 3-4% at the moment, but instead offer you a minimum of 1.25%. AS expected, most banks have almost immediately effected this CBN directive, as it means a little more money is available to the banks for other activities such as lending to business. Please note that you can, however, negotiate for a higher interest rate, based on what you are ‘bringing to the table’. Let’s know how that goes with your account manager. (smile)
Why is the CBN doing this? With all that is happening in the world and in the country, there is a need to stimulate spending and investment, to get the economy going, in an attempt to reverse a negative recession trend, as such, the CBN discourages savings by reducing interest rates. In some climates, the savings rate is about zero and worse.
If you read our previous article, a bet against the Naira, we are of the position that what we are seeing now are further indicators of the way the Naira will go in the near future. Nigeria as an import-driven country, adds little value to its economy from a value proposition, and as such, will struggle to pay it’s bills as it struggles to earn money with dwindling crude oil prices.and what it means for you as a Nigerian Investor.
In conclusion, the question is, are you still ‘investing’ in your savings account?