In response to the plummeting trends evident in market rates in the financial industry, which were in response to various core and non-core monetary policies in Nigeria, and to fine-tune the credit flow to real sectors of the economy (agriculture, mining, manufacturing, building construction etc.), Central Bank of Nigeria (CBN) put forth a new policy on minimum interest rate payable on savings deposit.
In the memorandum sent to all banks in Nigeria, which took effect on September 1st of 2020, Central Bank of Nigeria pronounced that all deposit money banks are mandatory to charge minimum interest rate of 10% of monetary policy rate (MPR) per annum and this is applicable only on local currency saved with Nigerian banks. Prior to the memo addressed to Nigerian banks, the minimum interest rate was 30% of MPR, which has stood at 12.5% since May 2020 and this event implies that the minimum interest rate on the savings domiciled with Nigerian banks was 3.75%.
The implication of this policy is that the deposit banks in Nigeria are mandatory to charge of 1.25% per annum on the depositors’ money in their custodies. For instance, if a customer has N1,000,000 stashed in his savings account and this new CBN policy empowers his bank to give him 1.25% of N1,000,000 per year and this amounts to N12,500 and the monthly accrued interest on average will be N1,041.67. Comparing it with previous minimum interest rates, the new rate of interest fell by two-third of the previous rates.
The policy, which was formulated stipulated that the minimum interest rate should be 1.25% per annum for savings deposits, though it could be higher than the suggested interest rate. In response to the memo, almost every bank in Nigeria was quickened to adjust their interest rate they paid on the deposits to be 1.25% per annum even though the policy specified its minimum to be that rate. These banks which were quickly adjusted their rate to be 1.25% still charge their customers 15% to 30% (on average, 15.560%) lending rate per annum on the money they lend to them. The wide gap between the lending rate and deposit interest rate should be something the Apex Bank in the country should look into.
With the applicable interest rate of 1.25% interest rate on saving deposits in Nigeria, this implies that a savings account holder with a Nigerian bank earns 1.25% of his money deposited with Nigerian bank per annum accrued monthly provided that such customers do not withdraw from such accounts more than thrice or four times – as this varies with the Nigeria's banks. Going by the current applicable rate of interest on saving deposits, if a saving account holder save ₦1,000,000.00 with a Nigeria’s bank it will take approximately 55 years and 6 months for such customers’ deposits to double to ₦2,000,000.00 provided that the interest rate accrued monthly or takes 55 years and 10 months for that ₦1,000,000.00 to amount to ₦2,000,000.00 if the interest rate of 1.25% accrued annually. Given the same average Nigeria’s bank lending rate of 15.650%, a money borrowed from Nigeria’s bank takes less than 7 years to double itself unlike the savings deposit which takes eternity to be double of its initial saved money.
The quarter-on-quarter GDP for the first quarter of 2020 grew by 1.9% over the fourth quarter of 2019, but the GDP plummeted by 6.1% in the second quarter of 2020 – no thanks to Corona Virus – and this represent first economic contraction since the first quarter of 2017. This suggests that the economic activities between April 2020 and June 2020 contracted by 6.1% compared to the first quarter of the year (i.e. January to March). The contraction in the Nigeria’s economic activities could have triggered the new CBN policy on savings deposit interest rate as the CBN goal was to stimulate private consumption in the country so that it improves the deteriorating state of economy. However, what was observed is that people do not save for the potential interest rate to be earned on the money saved with deposit banks. People tend to save to meet future needs. This is one of the many reasons the policy may not help the worsening state of Nigeria’s economy, and unless private consumption is aggressively stimulated through fiscal and monetary policies, we might not escape the economic contraction for at least next two quarters.
Given that the aim of the Apex Bank (i.e., Central Bank of Nigeria) for pronouncing the new interest rate on savings deposit at the minimum rate of 1.25% to fine-tune credit flow in the real sector, the CBN could equally pronounce the maximum lending rate a Nigeria's bank and Fintech firms can lend money to key players in the real sectors based on the level of assessed risks. As reduction in savings' interest rate may not stimulate the real sector of the economy as the offers by Nigeria’s banks do not adequately provide incentives for depositors to save rather they save their money for other purposes other than the interest accrued to it on a monthly basis. In addendum, the CBN may not have taken into cognisance the rate of inflation when formulating the policy, the current rate of inflation as at July 2020, which reads 12.82% implies one's money loses its value or purchasing power by 12.82% on average every month and the 1.25% earned per annum on deposits is inconsequential to compensate for the loss in the value of money.

https://halbeeb..com/2020/09/cbn-new-policy-on-interest-rate-on.html

What do you think about this policy?

halbeeb:
What do you think about this policy?

Savings don turn scam for naija. If you get chance, invest your money wisely. Forget savings.

is better u invest ur money on profitable investment than saving ur money in nigeria banks

xolocious:

Savings don turn scam for naija. If you get chance, invest your money wisely. Forget savings.

Our money get to loses its value on daily basis as the price of necessities such as foods increase. I do advise people to invest in appreciating assets and not keeping more than necessary in their savings account to near their future needs....

olus01:
is better u invest ur money on profitable investment than saving ur money in nigeria banks

I think most of the profitable investment in Nigeria are not really profitable when we factor in the rate of inflation. Like Treasury bill is paying around less than 4.00% per annum yet our monthly inflation rate is around 12%....

For any investment to be profitable, the interest rate should be higher the inflation rate. And most mutual funds offer one's interest rate around 10%....

lol, if you get money for any bank you just dey waste your time.

Use that money to trade, you'd be better off.

Naija don cast big time, get out while you can.

We have good policies to drive the economy. However, we lack political will to implement them.

halbeeb:


Our money get to loses its value on daily basis as the price of necessities such as foods increase. I do advise people to invest in appreciating assets and not keeping more than necessary in their savings account to near their future needs....

EXACTLY BRO. YOU ARE RIGHT. IT IS WORTHLESS SAVING MONEY IN ONES BANK ACCOUNT.

WorkTheTalk:
We have good policies to drive the economy. However, we lack political will to implement them.

And I think those good policies may affect the elites and that is why there might be dearth of political will to enforce them. Imagine the government introduce luxury taxes and items/property worth above NGN 25 million should be considered luxurious. I'm sure the elite would go against this policy...

ecomalchemist:
lol, if you get money for any bank you just dey waste your time.

Use that money to trade, you'd be better off.

Naija don cast big time, get out while you can.

I think it is better such money be put to productive use like investing them in real sector of the economy....

Oga Lalasticlala, would you still consider leaving your in savings account or you would rather invest it?