'Great news!' CBN reduces interest rate on bank deposit for customers

THE Central Bank of Nigeria (CBN) has directed all deposit money banks across the country to review interest payable on savings account to a minimum of 10 percent.

Bello Hassan, CBN Director of Banking Supervision, who stated this in a letter on Monday explained that the new Monetary Policy Rate (MPR), which is a decline from the former 12.5 per cent, is effective from September 1, 2020.

“In line with the recent market developments, the bank has reviewed the minimum interest payable on savings deposits as provided in its guide to charges by banks, other financial and non-bank financial institutions issued in December 2019,” Hassan said in the letter.

“Consequently, all deposit money banks are hereby informed that effective September 1, 2020, interest on local currency savings deposits shall be negotiable subject to a minimum of 10 percent per annum of monetary policy rate.”

With MPR at 12.5 per cent, the new interest rate on savings deposit will go from 3.9 per cent to 1.25 per cent, meaning that customers will get less when they invest their money via saving accounts in banks.

It also means deposit money banks will benefit more as they will earn higher rates from lending money out, while giving out lower rates from deposits, according to Seyi Kolawole, a research analyst at NASD PLC, a solution-oriented central infrastructure provider that focuses on creating liquidity for investors and raising capital for enterprises.

Kolawole explained that the new policy is likely to encourage Nigerians to explore other alternatives of farting returns on their funds as opposed to relying on deposit interests.

He however added that the new rate should trigger unrest among customers but believes it won’t change much as they stand to gain from the change.

“This reduced deposit interest rate is also a positive for Nigerians because it encourages them to divert investments into the real sector and not just financial instruments that do not have as much positive impact on the economy,” Kolawole said.

It could be recalled that the Monetary Policy Committee (MPC) of the CBN had voted to hold the parameters constant.

Godwin Emefiele, the Governor of CBN explained in a communique, that eight members of the committee voted in favour of holding the MPR, while two members wanted it reduced.

It was gathered that MPC’s decision to hold all rates constant was driven by the effect of the COVID-19 pandemic which has disrupted the global economy.