How to Make Your Savings Work for You

Following a significant N4.65 trillion recapitalization exercise, the Central Bank of Nigeria (CBN) has directed commercial banks to increase credit creation. The apex bank mandates that lenders channel these newly bolstered funds into productive sectors of the economy. The goal is to stimulate job creation, enhance productivity, and boost foreign exchange earnings. This directive signals a potential new era for credit-worthy individuals and businesses previously hampered by limited access to loans. Monetary Policy Committee (MPC) member Prof. Murtala Sabo Sagagi noted that stronger bank capital should ideally translate into reduced lending rates and more accessible loans for both households and businesses. Beyond potential loan relief, the recapitalization, the largest in Nigerian banking history, offers reassurance to depositors about a more resilient financial system capable of supporting economic growth and withstanding shocks. However, concerns persist that banks might attempt to recoup recapitalization costs by imposing higher lending rates or prioritizing high-net-worth individuals and large corporations over genuinely productive sectors. The MPC's decision to maintain the Monetary Policy Rate (MPR) at 26.5 percent and the Cash Reserve Ratio (CRR) at 45 percent presents a dilemma for savers. Economist Muda Yusuf explained that banks must set aside a portion of deposits as CRR, earning no return on those funds while still paying interest on the entire amount. This makes offering very high deposit rates less feasible. Consequently, yield-seeking savers are advised to be more proactive in aligning their investments with current market conditions and diversifying their portfolios based on financial goals, cash-flow needs, and risk tolerance.

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If a bank receives a N600 million deposit, about N45 million must be set aside as Cash Reserve Ratio (CRR). The bank earns no return on those funds, yet it still pays interest on the entire deposit. Since it cannot use the CRR portion for lending or other business activities, offering very high deposit rates becomes a disincentive.