Ability to save regularly, minimum deposit requirement and safety of the funds

We are going to evaluate the following modern and some popular traditional savings vehicles against factors – ability to save regularly, minimum deposit and safety of savings – that a saver should take into consideration 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

Minimum initial deposit into the savings vehicle and ability to save on a regular basis

An individual can only save what they can afford to, all considerations factored in. One can come across a saving vehicle that is excellent but it requires a minimum amount that the saver is not able to afford. For example, some vehicles will demand a minimum investment of Kshs. 100,000 or Kshs. 1m and one can only manage to put in Kshs. 3,000 per month.  This will disqualify this vehicle as a good saving plan for this saver even though it may have other very good qualities.

For most people, income is periodic, therefore, vehicles that allow regular deposits are more friendly as savers are able to accumulate their savings over time. For vehicles that require, bulk-one-time deposits such as Treasury Bills and bank deposits, many savers will have to build up their savings in a different vehicle and once it is enough, they deposit it in this vehicle of choice.

The vehicles that do not allow additional amounts to be deposited once the initial deposit is made, almost always, require relatively higher minimum deposit. They are appropriate for individuals earning very high monthly income or for individuals getting windfalls such as inheritance, winning a lottery or earning an annual bonus.

Savings bank accounts, most Mobile & Web Application driven saving vehicles and aggregators, Merry Go Round Chamas, Saccos and money market funds all allow affordable and regular deposits. They are friendly to individuals who earn regular income and are willing to save small (or even huge, when an individual can afford) periodical amounts.

In Sowa, our mobile driven saving application, our Savings & Goals and Pay Your Self First products allow affordable and regular deposits of as low as Kes. 5 while G-Pay requires a relatively higher initial minimum deposit of Kes. 500,000 with additional deposits of at least Kes. 10,000.

Treasury Bills and Bank deposits, all require one to have a significant initial amount. The minimum required for a Treasury Bills, for example is Kshs 100,000. Varying Banks have varying minimum amounts than can be deposited as a Bank deposit.  For both vehicles, (Treasury Bills and Bank Deposits) once you have deposited the amount, there is no option of adding that amount at a later date unless you buy a new Treasury bill or deposit all together.

Safety and security of the savings

A good savings vehicle should ensure uncompromised safety and security of the funds.  There should be no possibility of losing the money that one has saved. Supposing that one wishes to save for a short-term period (0-24 months), the savings vehicle of choice should guarantee security for at least that period and more.

If the savings plan is a medium term (3-5 years) plan or long term plan (7-10 years), the savings vehicle should not only guarantee safety and security of the savings but also the possibility of earning some interest income (on the savings) so that one does not lose to inflation (time value of money).

Saving vehicles with insurance covers will be more desirable than those without.  These is inclusive of savings bank accounts and bank deposits that are covered by the Kenya Deposit Insurance Corporation (KDIC). KDIC is a statutory institution established under the Kenya Deposit Insurance Act, 2012 whose mandate is to provide a deposit insurance scheme for customers of member institutions and to provide incentives for sound risk management and generally promote the stability of the financial system. KDIC plays the role of protecting depositors against loss of all their deposits in case of a bank failure, by providing payments of insured deposits thereby ensuring depositors remain confident enough to continue keeping their savings within the banking and payments system.

Saving Vehicles with financial institutions will be more secure than funds held by individuals. Ranking highest among these will include funds held by the government – treasury bills – are considered most secure.

Money market funds are regulated by the Capital Markets Authority (CMA). CMA requires fund managers and technology driven vehicles put in place very secure governance structures. They will therefore, rank high in the safety and security factor.

Treasury bills will rank highest in terms of safety and security, followed by money market funds, bank deposits and savings accounts.  Merry-Go-round chamas will rank lowest as most of them have either negligible or no risk management structures.

Different Saccos have varying degree of governance and risk management structures depending on the management capability and integrity. A saver therefore needs to do proper due diligence before choosing an appropriate Sacco that will ensure that the money is not only safe and secure but also well managed and invested.

Article done by Peninah Kimani

CEO Givva Wealthtech Ltd