CBN Reviews Minimum Interest Rates on Savings Deposit to 1.25%

Monetary Policy Rate Reduction

With inflation rate at 12.8%, it is almost like saying banks are being paid to keep customers money. The Central Bank of Nigeria (CBN) has instructed commercial banks in Nigeria not to pay less than 1.25% in interest on savings deposit accounts.

In an excerpt contained in a circular seen by Nairametrics dated August 31, 2020, the following was drawn out;

“In line with recent market developments, the Bank has reviewed the minimum interest payable on savings deposits as provided in its Guide to Charges by Banks, Other Financial and Non-Bank Financial Institutions issued in December 2019.

“Consequently, all deposit money banks are hereby informed that effective September 1, 2020 interest on local currency savings deposits shall be negotiable subject to a minimum of 10% per annum of Monetary Policy Rate.”

Factor: 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. MPR is currently 12.5%. Savings deposit rates are default rates banks pay customers for keeping their money in the banks. According to people familiar with CBN rate applications, the rate used to be 30% of MPR but has now been reduced further by the CBN. The savings deposits rate is mostly overlooked by Nigerians due to its historical low rate. CBN websites put the rate at about 3%.

Meaning: When you keep money in your savings deposit accounts you will be paid at least 1.25% per annum by banks. When you consider that inflation rate is 12.8%, then this is almost like paying banks to keep the money for you.

It is only wise to be in the know and know what works better for one. If you ask anyone, one would say that the surest way to a less negative impact of continuous inflation in the polity is investing funds rather than keeping it in the bank. I think we all agree with this.

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