We are going to evaluate the following modern and some popular traditional savings vehicles against factors that a saver should take into consideration (liquidity and ease of exit) when choosing an appropriate savings vehicle.

• Mobile & Web Application driven saving vehicles and aggregators
• Savings Bank accounts
• Merry Go round Chamas
• SACCOs
• Bank deposits (Fixed & Call deposits)
• Treasury Bills (TBills)
• Money Market Funds

Liquidity

Liquidity means how quickly you can get your savings converted into cash in your hands.  While accessing our cash easily and in the quickest way is the most desirable situation, money meant for savings need not be accessible too easily. Easy access may lead to one spending money on urgent but not necessarily, important ways. This, in itself, maybe the cause of failure to follow the saving plan.

A savings vehicle should neither be easily accessible nor should it be impossible to get funds from. Since the funds are meant for savings, there should be some relative level of difficulty in accessing the funds, such that one cannot access them through, Mobile Money, ATM card or a cheque.

Many of us, due to our money personalities (spenders) are able to stop spending money only when there is no more cash to spend. This is brought about by many factors, including the fact that we are Africans and we are very communal. So even when one is down to the last coin and a friend or relative has an emergency (real or imagined) we give what we can. The amounts we give will mostly be what we can easily access, like whatever is in our mobile money accounts or cash in our pockets.  In order to successfully save, a savings vehicle therefore should not be easily accessible.  It should take at least 24-48 hours to be able to access the saved funds. This period of time will allow one, time to sleep over the unplanned expenditure of the hard earned, miraculously saved money. If the expenditure is not aligned with the saving objectives, it is likely that in 24 to 48 hours the saver will have sobered up and ignored the expenditure.

On the other hand, ability to withdraw funds from a savings vehicle should not exceed 7 to 14 days.

Savings Bank accounts which do not issue ATM cards and limit the number of withdrawals per period rank high (good saving vehicles) in the liquidity factor as they limit access without crippling the saver when indeed they need the cash.

Most Mobile & Web Application driven saving vehicles and aggregators also pay within 24 to 48 hours while Money Market Unit trust funds avail cash after request between 24 to 72 hours. They all rank quite high in the liquidity factor as they allow an ideal time limit to access cash.

In Sowa, our mobile driven saving application, you are able to access your savings from any of our products within 24 to 48 hours.  While for G-Pay you access your interest income as regularly as you wish.

Treasury bills, termly bank deposits and merry-go-round-chamas, rank low on this matrix as they are time based. You can only with withdrawal after the predetermined period is over. While this enables one to save for a longer time, it maybe limiting when in need of cash.

Different Saccos have different timelines when it comes to liquidation of savings ranging from 7 days to several months depending on how liquid the Sacco is. A saver therefore needs to do proper due diligence before choosing an appropriate Sacco that will meet his liquidity needs.

Exit Options

Savings vehicles should have an easy exit option.

The only constant thing in life is change and so when we start something we should always think of how it will end. A point will come that you will need to pull out the money from the Savings Vehicle. What will the exit look like?

• To access your savings, will you need to pay penalties, or fines on the saved amounts?
• How long will it take to access the saved funds?
• Would it involve breaking up important relationships (family or friends) to get your money out?

A good Savings Vehicle, should not have fines or penalties at the point of exit that touch on the principal amount. One should be able to access the total principal amount saved. The next level up is get your principal plus interest at the point of exit.

The maximum number of days one should be able to access savings is 7 days. Remember that this is a Savings Vehicle and not an investment vehicle. Investments may take longer due to the need to liquidate (sell the underlying asset). However, savings should be more readily available.

Finally, one does not need to break up family and other relationships in order to access savings. This mostly happens in chamas. The exit options for chama members is not normally properly laid out at the onset of most chamas.  In addition, most chamas are formed based on friendships, family relations and informal business communities. In these kind of relations, it is hard to separate emotions and business and hence exits, (even when genuine) may not be taken very well by the rest of the chama, it may create resentment, nasty gossip (as to why you are exiting) or petty jealous which often affect relations going forward.  The other major challenge with Chamas is liquidity levels. Most of the cashflow in chamas is usually invested on receipt or is allocated to the designated member. If one member needs to exit impromptu, then cashflows to support the exit will almost always be unavailable. The exit process then becomes unnecessarily lengthy and maybe punctuated by drama and intrigue.

Saving bank accounts, Bank deposits and Treasury bills do not attract any interest or penalties as long as one adheres to the set out timelines. If a withdrawal from a saving account should be after 6 months or a deposit is three months, breach of the timelines may result into some penalties.

Exit from most Mobile & Web Application driven saving vehicles and aggregators as from Money Market Funds are very friendly when it comes to exits and withdrawals. Most of the fund managers will release funds in 2 to 4 days, no penalties no drama.  They all rank quite high in the ease of exit factor.

In Sowa, our mobile driven saving application, you are able to exit at any time convenient to you. Every individual sets out their saving goals, identifying their planned saving timelines aligned to their saving plans and expected interest rates. Once they achieve their timelines they can withdraw their funds and proportionate returns aligned to the saving timeline.

SACCO exit timelines are dictated by liquidity levels in the SACCO and the rules guiding the exit process. For most of the SACCOs it takes more than a month to exit and receive all of the funds.

Article done by Peninah Kimani

CEO Givva Wealthtech