In Kenya, Bank Customers are Being Paid lowest Returns on their Savings Accounts

Kenyan banks are now taking desperate measures to conserve capital, following what has been a truly challenging 2020. Latest data from the Central Bank of Kenya showed that the September rates paid to bank customers for their savings accounts declined to 3.78%. This is the lowest since August 2016 when the rate stood 1.68%.

Business Elites Africa understands that earlier in the year (January to be precise), the rate stood at  4.25%. Unfortunately, it has steadily declined ever since. And now, a growing number of Kenyans are choosing to stack their money anywhere else but in the banks, due to the lack of interests.

Explaining the reason for the steady reduction in savings rates, Habil Olaka who is the Chief Executive of Kenya Bankers’ Association, told Business Daily Africa that “there is reduced demand for cash for onward lending by banks as a result banks have reduced their savings and deposit rates. Because of the pandemic, banks have become risk-averse to avoid an increase in their bad loans. This is why lending to the private sector is not growing as it should, as a result, their appetite for cash is not growing hence banks are not giving a lucrative deal to savers.”

It should be noted that savings rates generally entail how much compounded interests bank customers are entitled to receive on their savings. This is different from the interests on their deposits, which are typically smaller than that of savings.

In 2017, Kenya’s savings account interest rate fell lower than the inflation rate. What this means, therefore, is that the real value of customers’ savings have consistently been eroded. This, coupled with the significant reduction in interest rates, makes savings unfavourable at this time.