Depositors to earn less from savings as banks adjust rates

Chamas, wealth managers and ardent savers are about to feel the pinch of the removal of the savings rate law as banks make it hard to earn interest.

The amended law will lock out close to 97 per cent of depositors who have less than Sh100,000 in bank accounts, as lenders cap interest-earning deposit at a higher level.

Parliament voted to remove the floor on the rate cap law that had recommended that banks pay interest of 70 per cent of the Central Bank Rate to savers’ deposits regardless of the deposited amount.

With that gone, lenders are introducing a new system which will only see the wealthiest savers enjoy a lucrative rate at the savings and fixed deposit counters, while small savers get almost nothing.

At Standard Chartered, those seeking to lock their money and earn interest will need to save above Sh50 million to get an annual return of six per cent.

Below Sh2 million will earn you a paltry one per cent and only two per cent below Sh5 million.

“Following the passing into law of the Finance Act 2018 on 21st September 2018, the Banking Act has been amended to remove the requirement for banks to pay a minimum amount of interest on interest-earning deposits,” Standard Chartered Head Retail Banking, Kenya & East Africa David Idoru wrote to clients informing them of the changes.

The bank said that effective October 18, 2018, the interest payable on the Savings Account has been revised to a maximum of six per cent per year, based on the credit balance held in the account

However, when we contacted the lender’s customer care service, the representative said the new rates do not apply to current savings, especially for fixed deposit accounts.

“You will get what you negotiated. The rates apply for new customer applications. You are soon going to see other lenders change terms,” the StanChart customer service representative said.

Those who save below Sh10 million will get 2.5 per cent and those below Sh15 million will earn three per cent. National Bank of Kenya (NBK) has also introduced the tiered system although offering better rates than its peers.

The tiered rate will see savers earn one per cent for deposits between Sh5,001 and Sh50,000 and five per cent for savings between Sh50,001 and Sh2 million. Those who save above Sh2 million will earn seven per cent.

“As a bank, we have chosen to provide full benefits to our existing and new Savings Account customers by giving them up to seven per cent in interest on all savings as we celebrate our 50th birthday,” NBK Chief Executive Wilfred Musau said.

NBK move may have been informed by changing industry dynamics to take advantage of the hardline position taken by big lenders. It hopes to attract depositors who will lose out on better deals. NBK is keen to improve its deposit levels following the delayed capital raising mission sponsored by its key shareholders  the National Treasury and the National Social Security Fund, who have in principle committed to pumping in Sh4.2 billion.

Most local lenders are yet to change their terms, with KCB and Cooperative Bank offering 6.65 per cent for a 12-month fixed deposit on amounts above Sh1 million. Insiders, however, say their position was likely to change as banks eye cheap cash to service lendings.

Equity Bank, according to our spot check is offering 6.3 per cent for a similar amount of money within a year. The latest rate review is likely to surprise the market. It comes at a time banks are struggling to shrug off negative sentiments about them.

“There is anger towards you. There is a feeling that a banker would rather hunt for a loophole to maximise profits. It seems for Wanjiku, banks ask for the umbrella when it starts raining,” CBK Governor Patrick Njoroge said at the Kenya Bankers Association annual forum.