Benefits, downsides of high-interest savings accounts

In a bid to get more returns, some bank customers are turning to High-Interest Savings Accounts offered by fintechs and even traditional banks. Oluwakemi Abimbola reports on the benefits and disadvantages of the product

It was supposed to be a lighthearted post about traditional banks and the interests that they offer to their customers, however, the comment section of the post on Instagram was filled with comments from dissatisfied bank customers who wanted more, showing that the message of the post had hit home.

There were indeed customers who were not too happy with the interest they were getting on their savings accounts domiciled with the traditional Deposit Money Banks.

A bank customer, Empress Mata, said that her relationship with the banks was parasitic when her funds were solely domiciled with them. She said that she had about two savings accounts with two banks; one of which she runs like a current account and pays her bills out of and the other was dedicated to savings.

“You see, that saving account, I barely get any interest out of it, rather it was the regular debut alerts for maintenance fees and electronic transfer, whenever anyone transfers money to the account. I would go for months without taking money out of it, still, the interest I got was low.”

Mata, who sells homewares, said that a fellow trader introduced her to a regional bank and she opened a savings account with them. “At the end of the first month, I got an interest of N2,000. I was pleasantly surprised. That was how I closed down the other account and moved my money to the regional bank.”

Still aiming for better returns on her savings, which Mata said that she’s growing for investment purposes, she’s currently researching High-Interest Savings Accounts offered by financial technology firms.

An IT expert, Aden Olu, revealed that he had already moved his funds from traditional banks a long time ago.

“I moved my money from traditional banks a long time ago. There is no interest that they want to give me that will be worth it. I use fintechs accounts for both my savings, investments and bills. So, there is nothing that the traditional banks give me that would interest me,” Olu stated.

One who is comfortably bestriding both fintech and traditional banks is a civil servant, Daniella Okiro, who said that while she uses fintech accounts, she has most of her savings in a special high-interest savings account with a deposit money bank.

Okiro revealed that several bank marketers had called to sell the HISA to her. She said that the account was specially created with a certain amount deducted from her account every month.

“The special account is actually for some time. I’m doing the one that lasts up to 18 months. Every month, I agreed to have a certain amount of money deducted from my account to the other account. The special account comes with an interest rate of 4.5 per cent,” she said.

High-Interest Savings Accounts are special deposit accounts designed to save for a project or keep aside emergency funds. It offers better returns, which can also be tiered interest rates; meaning the larger the balance, the higher the interest earned.

While some traditional banks with HISAs offer up to 8 per cent interest, the fintechs can offer interest in double digits.

A personal finance expert, Kenneth Doghudje of MoneyTalkNG, speaking with The PUNCH,  said that while HISAs were good for idle funds, a person is likely to get better deals from investing the fund.

He said, “Having a high-interest savings account is to me just folding your hands. It is good to have it, it will help you protect your money and grow it but you can get better deals by trading with your money. When I say trading, I mean investing in something tangible and working hard towards growing your money, but on the road to growth, you will need different investment vehicles and a high-interest savings account can be one of them.

“You can say it is a simple way to make money, so you put the money there, at least you are sure it is going to grow and you will discipline yourself not to spend, not withdraw it and you can at least make some kind of gain on your money.”

Throwing more light on HISAs, Doghudje said that the higher interest offered can serve as a motivation to save.

“It is a vehicle whereby you can save your money for extended periods and the bank or the financial institutions pays you above average interest rate as a motivation for you to keep your money. People need the motivation to keep their money and secondly, things always come that want to take your money but if you keep it in a high-interest savings account, there is a benefit that you can gain from it in the short to long term.

“For example, if someone tells me that I am going to get 20 per cent of my money if I keep my money for 12 months and I put N1m there, that means at the end of the 12 months, my money becomes N1.2m. That can be a motivator that will make me want to keep my money there for a long period and remove my eyes from it.”

He said while it is a good avenue to grow funds, it has an expiration date.

“It is a good avenue but it is just a vehicle to take you from one point to the other. You know if you enter a vehicle, it takes you from point A to Point B, and you will exit. The key thing is to see how you could increase your capacity to earn as much as possible and if you put your money in the bank, there is a limit to what you can earn. I’ll give you an example: a 20 per cent interest on your money for 12 months, but if you went to China for example and you bought a product, you could easily deliver a hundred per cent interest on your cost of purchase.

“I recommend it for those who have some money they can just keep aside but if you want to grow your wealth quickly, you have to put your money into something more than just keeping it in a financial institution and watching it grow within 12 months.”

A financial expert, Brain Essien, stated that fintechs are currently offering a far more attractive ROI on Savings Accounts and at a considerably lower entry amount than our traditional banks.

“Thus, it will be better to consider them over the more traditional banking institutions. Our traditional banks only seem to be good for approaching them for capital financing as compared to the fintech which can only offer an amount in most cases much lower than what the traditional banks can more easily offer. So, yes, when it comes to High Yielding Savings Accounts, fintechs offer better returns at much lower entry amounts and are thus more attractive than the traditional banks.”

According to Investopedia, what to look out for when considering HISA include the interest rate, the required initial deposit, minimum balance required, links to other banks, ease of accessing your money, deposit options and the compounding method.