There are strong indications that depositors would from today begin paying banks for savings deposits in their custody after the Central Bank of Nigeria (CBN) instructed commercial banks not to pay more than 1.25 per cent in interest on savings deposit accounts. The directive is contained in a circular to all banks by the Director of Banking Supervision, Bello Hassan, dated September 01, 2020.
With inflation rate at 12.8 per cent, the policy is almost like paying banks to keep the money for depositors.
According to Hassan, “the Central Bank of Nigeria (CBN) has noted with satisfaction the recent declining trend in market rates in the banking sector following the implementation of policies aimed at stimulating the credit flow to the real sector.
“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’ consequently reviewing rates to 10 per cent of Monetary Policy Rates.
“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 percent per annum of Monetary Policy Rate.”
The Monetary Policy Rate (MPR) is the anchor 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 per cent. Savings deposit rates are default rates banks pay customers for using monies kept in their custody.
According to people familiar with the apex bank’s rate applications, the rate used to be 30 per cent 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 even as it is quoted at about 3 per cent on CBN website. When you keep money in your savings deposit accounts you will be paid at least 1.25 per cent per annum by banks. When you consider that inflation rate is 12.8 per cent, then this is almost like paying banks to keep the money for you.