The idea of “saving money in the bank” has evolved significantly. While banks are still seen as safe, the meager returns on savings accounts and low-interest rates make them less attractive for wealth growth.
Today, many Kenyans view their bank accounts primarily as channels for salary deposits and basic transactions, with surplus funds often directed toward alternative investments.
Rina Hicks, the Operations Director at Faida Investment Bank, explains that banks, like other businesses, focus on profit. They achieve this by lending out customer deposits at higher interest rates than they pay back. “If I am a bank,” she says, “I want to pay the least possible and charge the highest possible to make a profit.”
This approach makes current accounts lucrative for banks but less so for customers, who may even face fees for maintaining their accounts. However, banks offer more than just current or savings accounts.
Elizabeth Irungu, CEO of Absa Asset Management, highlights options like fixed deposits and call accounts, which provide varying levels of accessibility and returns. Some banks even offer fund management services or act as intermediaries for government securities and unit trusts.
Maximising savings within banks
Understanding the broader range of bank products can make a significant difference. Ms Hicks points out that many people let their money sit idly in current accounts while weighing their investment options.
“For instance, you might receive Sh100,000 but aren’t sure where to invest it yet. Instead of letting it idle, explore bank products that can yield modest returns while maintaining access.”
Moreover, many Kenyans are unaware they can negotiate with banks for better interest rates on deposits. “Some banks offer rates as high as 8 percent or 10 percent for specific amounts. As a consumer, negotiate so you’re not earning zero,” Ms Hicks advises.
Ms Irungu emphasises the importance of proactive engagement: “Optimising your savings means understanding these options. Whether securing short-term liquidity or earning reliable returns, the banking ecosystem offers underutilised opportunities.”
Moving beyond transactions
Often, customers accept whatever account type banks offer without asking questions. Ms Hicks urges Kenyans to actively engage with their banks.
“The people who ask questions, even those that seem basic, are the smart ones,” she says. She points out that viewing banks as financial service providers rather than mere transaction hubs can lead to better outcomes.
However, she cautions against putting all funds into a single high-return vehicle like money market funds. “While these are generally safe, they carry risks. Some funds investing in commercial papers have collapsed, leaving investors waiting for payouts.”
Diversifying funds across different accounts, she points out, ensures both security and flexibility. For instance, call deposits allow customers to earn interest while maintaining access to funds. This is particularly useful for business owners managing payments or imports.
“Please make sure your money is earning you something,” Ms Hicks advises. “It should never earn zero.”
Challenges for banks and customers
The banking sector faces operational costs that limit its ability to match the high returns offered by alternatives like money market funds.
From mobile banking systems to regulatory compliance, these expenses make competitive rates challenging to sustain.
“Banks must balance their income from deposits and loans while covering high operational costs,” Ms Hicks explains.
Nonetheless, banks must continuously innovate to meet customer demands. “We need to think outside the box and provide creative solutions,” she says.
For customers, this means engaging banks as financial partners rather than purely transactional entities.
Broadening financial horizons
While banks remain vital for safekeeping and smooth transactions, they are not a one-stop shop for financial growth. Ms Irungu highlights the importance of diversifying investments.
“From insurance to real estate, Kenya’s financial services market offers various investment vehicles, each with unique benefits and risks.”
Taking a proactive approach can help achieve a balance between safety, accessibility, and growth.
“Engaging with your bank as a financial partner unlocks its full potential to support your wealth-building journey,” says Ms Irungu. Ultimately, a diversified financial strategy that combines bank products with other investments ensures both immediate needs and long-term financial stability.
