Earning Interest on Savings Accounts: Crucial During High Inflation
Why Earn Interest on Savings Accounts
Inflation Protection: Interest earnings help maintain purchasing power during inflation.
Wealth Growth: Compound interest accelerates savings growth over time.
Liquidity: Savings accounts provide easy access to funds.
Low Risk: Typically, savings accounts are insured and low-risk.
Disciplined Savings: Encourages regular savings habits.
Effects of High Inflation on your Investments and Income
Inflation Erosion: Inflation reduces purchasing power of idle cash.
Negative Real Returns: Savings lose value if interest rates don’t keep pace with inflation.
Increased Expenses: Higher inflation leads to increased living costs.
Benefits of High-Interest Savings Accounts During High Inflation
Inflation-Adjusted Returns: Higher interest rates help maintain purchasing power.
Increased Savings: Attractive interest rates encourage savings.
Hedge Against Inflation: Interest earnings offset inflation’s impact.
Emergency Fund: High-interest savings provide liquidity during uncertainty.
Types of High-Interest Savings Accounts
Fixed Income securities
- Medium to long term Government securities.
- Unit trust Funds/Money Market Accounts
- Cooperate bonds and private placements
Generally, Inflation Rate has fluctuated between 2-6% in recent years, Interest Rates from commercial banks range from 5-15% per annum, Unit Trust Funds have returned between 8-17% in the recent past, Mobile Money Platforms like MTN Mobile Money and Airtel Money offer interest-bearing savings options.
Best Practices
- Research: Compare interest rates and terms.
- Diversify: Spread savings across accounts.
- Automate: Set up regular savings transfers. (financial discipline)
- Monitor: Review and adjust savings strategies in line with life events and changing circumstances.
By earning interest on savings accounts, individuals can protect their wealth, grow their savings, and maintain purchasing power during high inflation.
