Just before we walked crossed into 2020, I decided to be intentional about my personal finance journey. As a result, I started to carry out a lot of research and expand my knowledge on savings and investments. Being around people who were financial experts also helped to speed up the process as we engaged in a lot of knowledge sharing sessions. Before long, I started to re-evaluate certain financial decisions that I had made in the past in addition to discovering financial gems that I was sleeping on. One of which is, a high-interest savings account.
What is a high-interest savings account?
As the name suggests, this is a deposit account that pays high interest on savings. What a lot of us are used to are the deposit accounts which we have within the traditional banks. These accounts do pay interest on savings but, it is nothing compared to what you get from a high savings account.
To put it into perspective, the savings accounts within a traditional bank typically pay low interest. Unfortunately, this is very insignificant in the grand scheme of it especially living in a society with an inflation rate of 17.93% as of May 2021. In addition, these accounts tend to attract a lot of fees which we generally know as bank charges. They range from withdrawal fees to POS charges, stamp duties, ATM service fees and so much more. Ideally, this is to be expected because you are getting a service and the fees you get charged is how the banks can effectively maintain and run your operations smoothly. Hence why I have decided to rename these accounts in my head as a running or operations account. What this means is, I use these accounts to accept payments, pay my bills and transfer funds which leaves a lacuna in growing my savings. This is where the high-interest savings account comes in.
High-Interest Savings Accounts In Nigeria
In Nigeria, there are several Fintech companies that have sprung up, offering high-interest savings account. Their interest rates range from 5% to 10%, at least for the very popular ones. We have Backup Cash, PiggyVest, Cowrywise and a host of others. Though the presence of a physical office exists, these companies typically adopt digital banking as a model. They also do not come with the charges that you get with the traditional banks. You may not receive an ATM for these accounts which means that you still need the banks. They are not trying to compete with the banks in that regard but rather, trying to bridge the gap between savings and investment. In some cases, they are affiliated with companies that are licensed by the Central Bank of Nigeria or regulated by the Securities Exchange Commission. This is worthy of note because you want to ensure that your savings are safe and secure.
While some of the rates being offered currently do not necessarily match up to the current rate of inflation, the attraction here is, it is better than what the traditional banking system offers you. It makes it a step closer to protecting your money from inflation. It also gives you more money than what you deposited as opposed to taking from it. I guess that is what experts mean when they say let your money work for you. In my opinion, it is another means of passive income. The rates are annually but prorated such that when you are ready to take out the deposit, you still get what has accrued to you.