The Central Bank of Nigeria (CBN) has directed banks to pay at least 4.65% interest on savings deposit accounts, up from 4.2% earlier.
This is due to a 150 basis point increase in monetary policy rates to 15.5% from 14%. This hawkish decision by the central bank resulted in an increase in the interest rate on savings deposits, which has the potential to mob up the money in circulation.
Mr. Godwin Emefiele, governor of the Central Bank of Nigeria (CBN), announced the MPR modification at Tuesday’s monetary policy committee meeting.
Context: The Monetary Policy Rate (MPR) is the rate at which the CBN lends money to banks. It is a benchmark rate for lending in the financial services sector. Savings deposit rates are default rates banks pay customers for keeping their money in the banks. Previously, the MPR was pegged at 14% by the CBN and 30% of that is 4.2%. Currently, the MPR is at 15.5% and 30% of that is now 4.65%.
What you should know
- The Central Bank of Nigeria recently increased the negotiable minimum interest rate on local currency savings deposits from 10% to 30%, which took effect on August 1, 2022.
- An increase in the interest rate on a savings deposit is typically expected to increase savings and serve as a form of contractionary monetary policy. However, because inflation has surpassed all of these rates and any money saved loses purchasing power over time.
- Nigeria’s inflation rate surged further to 20.52% in the month of August 2022, from 19.64% recorded in the previous month, representing the highest rate since September 2005.
- If the rate of inflation surpasses the rate of interest generated on savings, the investor loses money. Inflation is likely to erode a consumer’s purchasing power over time. Fortunately, there are ways to keep your savings purchasing power intact. That implies investing while keeping your risk level low.
- Nairametrics published an article on How to Make Money from the CBN’s 15.5% rate hike, with the belief that there are money-making opportunities available in Nigeria today amid tough economic conditions.
Banks are not sincere in the implementation. Some banks did not start the implementation as directed in August. I can mention names. Secondly, the rate specified by the CBN is supposed to be the minimum such that the rate structure must be graduated. However, most banks that implemented paid all savers 4 2 percent. Any attempt to borrow this same funds from.the.bank.is at over 30 percent
Thirdly, the new minimum savings rate does not cover fixed deposit accounts. We still see banks paying below 4 2, percent on the excuse that they were not covered in the Circular. We always find ways to cheat and cut corners.
Fourthly, I know of one bank that paid and withdrew such interest income from the accounts of the savers but returned it after because it wanted to watch reactions and what other banks are doing
Thanks Mr Ologun for the comment. A lot of abracadabra goes on in the banks all in a bid to deny customers their interest incomes. Why must it pain banks to pay N175,000 on N50m when it will take in over N5m from the same principal sum from trading.
Banks drop interest income on day 27 after the complete 30 days spreading to the preceding month. In essence, books have been closed. Customers should be careful and not fall for such bait by withdrawing from the banks. It is deception grade A and breach of trust. The banks will ultimately withdraw that interest and possibly wipe the account of customers. Thereby punishing the customers needlessly. Banks should drop the interest on the last day of the month. These actions are happening. Customers are being punished. In the fullness of time, names would be mentioned. Customers should not be fooled, no.banks is your friend. It is all in the interest of trading on your deposits and cheating you. So shine your eyes. Grow alternative and more profitable investment schemes aside sterilizing your funds in a savings account.