NCBA Bank Compound Interest initiative promotes financial literacy, empowering Kenyans to embrace smarter, long-term saving habits.
The savings culture in Kenya is marked by diverse ways of saving, as reported by the Central Bank of Kenya’s 2024 FinAccess Household Survey. Mobile money remains the most visible channel for saving, with 35.9% of Kenyans using it to save their income. Chamas (informal savings groups) rank second at 19.7%, reflecting the continued appeal of group saving. Mobile banking stands at 16.7%, while 16.2% of Kenyans still opt to hide their money in hiding spots.
This data portrays both the progress and challenges of Kenya’s economy. The nature of our growing economy is that the majority of Kenyans have to be concerned about monthly bills, medical bills, loans, and many other such personal expenses. Skills such as proper budgeting, preparing monthly financial assessments and checks, and choosing suitable methods of repaying loans do not run in one’s family. And sadly, neither are they taught comprehensively in schools.
Developing a more robust saving culture entails bridging these gaps. Financial education, particularly in topics like compound interest and long-term planning for investment, can help shift attitudes and behavior. Evidence from NCBA’s session with Family TV Kenya’s Financial Clinic shows that giving individuals financial knowledge can enhance financial decision-making and more general take-up of organized saving and investment products.
One of the most important concepts that very few are still aware of is compound interest. Compound interest is interest that applies not only to the initial principal of an investment or a loan, but also to the accumulated interest from previous periods. In other words, compound interest involves earning, or owing, interest on your interest.
To accumulate compound interest, you will need to reinvest the interest or returns that you make, in effect allowing your gains to create further gains. You can accomplish this using various saving and investment vehicles such as savings accounts, certificates of deposit (CDs), money market accounts, stocks, mutual funds, and bonds. Not only does reinvesting enable you to take full advantage of the compounding power of growth but also provides the possibility for diversifying your portfolio.
For instance, where one invests in terms of bonds, the interest normally accrues semi-annually, and SACCOs usually distribute dividends on an annual basis. Whatever frequency they are paid in, reinvestment of the earnings is advocated so that your long-term finances are helped most.
In order to boost the saving culture in Kenya, stakeholders, ranging from the government and financial institutions to the educators and media, must combine forces to facilitate trust, access, and financial literacy. Sustained adoption of formal savings instruments, sensitization on the benefits of long-term investing, and empowerment to take charge of one’s finance can bring lasting change.
In a country as dynamic and inventive as Kenya, the possibilities are endless. More Kenyans can move from simply saving funds to growing it, with access to proper support and education leading to doors opening for greater financial stability and wealth.
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