Its no doubt that placing your disposable income or other saving in a bank account is a way to secure your hard earned money. fortunately, most banks and deposit taking financial institutions pay an annual interest of your deposits. Some will even offer you a fixed deposit account which apparently offers a guaranteed interest earning on your deposits. This rate of course vary depending with the financial institution. Currently some banks in Kenya are paying a low of 1% per annum and a
high of 7% per annum  of course depending on the duration and the amount that you are fixing.

If your money is just in a regular savings account whether in a bank, microfinance, or a Sacco, the most likely scenario is that
you are going to earn minimal to no interest on your savings regardless the duration the amount has remained in that account.

The bottom line here is that if you don’t intend to you that money immediately, you can always ask your banker to advise you on the available fixed deposit options.

Beating inflation

Whether you are saving for a future project or you are saving because you don’t have an immediate financial obligation to meet, you would of course  need to consider the best options available for you to keep your money safe and against any loss of value with time.

Inflation refers to the general increase in the price of goods and services in an economy over time. When inflation is high, goods are more expensive and your money doesn’t buy as much.

Inflation rate negatively impact on your cash savings if no adjustment strategies are in place. For example, the inflation rate in Kenya for the month of April 2023 was at 7.9% p.a. Assuming this rate will remain constant over a long time, it means that the value of your savings will be affected negatively with time. This is usually reflected on the value of commodities. It means that with time the commodity you could have afforded a year ago with that amount, you won’t  be able to afford then with the same amount you had saved.

The key point here is that interest paid on your savings are meant to offset the inflation impact with time. Unfortunately, where the inflation rate is constantly higher, the interest paid on your bank deposits might not be sufficient to offset the impact of inflation on your savings purchasing power  with time.

But they are always paying below the inflation rate!

Unfortunately you will often be offered rates below the inflation rate in most financial institutions in Kenya. These rates by the banks are normally influenced by the bank rate which is set by the central bank. Again, since this is a free market, other financial institutions such as Saccos which are not under central bank regulation,  follow the suit since they are banking with the commercial banks and getting their credit from those commercial banks.

How do I beat inflation now?

It is not just beating inflation, but how higher!

Fortunately there are numerous opportunities in money market and real estate that one can comfortably and securely earn sustainable returns that are higher or even double of what banks and Saccos are offering. In the next article we are going to explore those opportunities that you can take advantage of without necessarily being actively involved

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