Return on savings below inflation first time in 5 years

Capital Markets

Thursday February 23 2023



Fixed deposit rates in banks fell below the inflation rate for the first time in five years, delivering a negative return for high-net-worth savers.

Data from the Central Bank of Kenya (CBK) show the fixed deposit rate stood at 6.76 percent last year from 6.3 percent a year earlier.



Inflation hit a multi-year high of 7.64 percent last year from 6.1 percent in 2021 due to a biting drought that sent food prices high, costly energy related to Russia’s war in Ukraine and a weak shilling that made imports expensive.

This left investors who in the past five years have made money from bank deposits with a negative 0.88 percent return on their savings.

This means that the savings will buy fewer goods and services in the economy as prices of a wide array of goods and services have galloped at a faster pace than returns on short-term investments.

A fixed deposit of Sh1 million at the beginning of last year has seen its value fall to Sh991,200 at the end of the year.

The fixed deposits, which offer premium rates compared to savings accounts, have grown 40 percent over the past five years to Sh1.63 trillion at the end of November last year on the back of the positive returns.

The returns have benefited cash-rich firms like Safaricom and KenGen in boosting their earnings from interest income.

Now, the inflation landscape has narrowed investment options providing positive returns to investors, with government paper emerging top in beating the cost of living measure among the top investment classes.



Yields on treasury bonds were as high as 14.1 percent while 1-year treasury bills crossed the 10 percent mark for the first time since early 2019.

Investment in land especially in Nairobi’s satellite towns like Athi River narrowly beat inflation after posting an average return of 9.0 percent last year on rising demand, according to real estate firm HassConsult.

Land in the city trailed inflation with a 1.23 percent return. The Nairobi bourse had a negative return of 23 percent last year when investors lost Sh606 billion.



The CBK expects inflation to fall within the State target of 2.5-7.5 per cent in the early part of this year. Inflation has fallen for three consecutive months to 9.0 percent in January from 9.6 percent in October.

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Beryl Onyango

Beryl Onyango is a CPA and economics degree holder who has dedicated her career to helping others navigate the complex world of finance. Beryl has spent the past 3 years working as a finance specialist in a fintech company and has 6 years of experience in finance, working with a diverse range of clients and industries. Beryl's expertise lies in budgeting, saving, investing, and retirement planning, but she also has a deep understanding of various other areas of finance. She is interested in financial technology and how it changes how we manage our finances. As a finance writer, Beryl has been sharing her insights and knowledge through her writing, covering various finance and personal finance topics. Her goal is to educate and empower individuals to take control of their finances and achieve their financial goals. In addition to her professional experience, Beryl is a lifelong learner, always seeking to expand her knowledge and stay up-to-date with the latest developments in finance. She is also a strong communicator, able to explain complex financial concepts in a clear and easy-to-understand manner. Beryl believes that financial literacy is the key to achieving financial success, and she is dedicated to helping others achieve their financial goals.

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