The Central Bank of Nigeria (CBN), has directed financial institutions across the country to pay savings deposit accounts an interest rate of at least 4.2%, which is a surge from the 1.4% previously received.
In a circular cited by BizWatch Nigeria, the apex bank stated that the hike in savings interest rates, which became effective from Monday, August 1, was made in light of the return to complete normalcy after taking into account the current macroeconomic conditions.
The circular read: “It will be recalled that as part of the efforts to ameliorate the impact of the COVID 19 pandemic, the Central Bank of Nigeria reduced the minimum interest rates payable on local currency savings deposits from 30% to 10% of the Monetary Policy Rate (MPR).
“This was aimed at stimulating growth in the larger economy following the economic slowdown occasioned by the Pandemic.
“Following the return to full normalcy and considering the prevailing macroeconomic conditions, it has become necessary to effect an upward adjustment of the interest rate payable on local currency savings deposits. The negotiable minimum interest rate on local currency savings deposits shall be 30% of MPR. This supersedes our letter dated BSD/DIR/GEN/LAB/13/052 on the subject. September 1, 2020.”
How the CBN’s savings interest rate works
It would be recalled that the apex bank introduced interest rates on savings last two years. And unarguably, with the figures previously pegged at 1.4%, savings were made unattractive, such that it only encouraged investors and companies to invest their money in the economy, rather than having it locked away in bank vaults to grow in value without having to spend.
However, with CBN pushing to curb the soaring inflation rate, the new savings rate is believed would entice Nigerians into saving.
Consequently, a knock-out effect is projected to be felt on inflation performances in the long run.
