Fixed Deposits in Kenya: Secure Investment Options for Savvy Savers

What’s a fixed deposit account?

A fixed deposit account is a special type of savings account offered by banks. You put money in for a set time, like 3 months, 6 months, or a year, etc. The bank pays you interest on this money.

Here are some key things to know about fixed deposit accounts:

• Your money is locked in for the agreed time
• You get a set interest rate that doesn’t change
• There’s usually a minimum amount you need to deposit
• You might have to pay a fee if you take money out early

Some of the banks in Kenya that offer fixed deposits include:

• Equity Bank
• Standard Chartered Bank
• I&M Bank
• KCB Bank
• Absa Bank

These accounts can be good if you want to save money and earn interest. But remember, you can’t easily access your cash until the time is up.

Fixed deposits are pretty safe. In Kenya, the Central Bank helps protect your money up to a certain amount.

You can often choose how you get your interest:

• Monthly
• Every three months
• Once a year
• All at the end when your deposit matures

Keep in mind that fixed deposits attract the 15% tax on the interests earned. It’s a good idea to check with your bank about this.

Interest rates for fixed deposit accounts

Fixed deposit accounts in Kenya offer attractive returns. You can earn between 7% and 10% interest on your savings. The exact rate depends on the bank you choose and how long you keep your money in the account.

Bigger deposits often get higher rates. Banks compete to offer good fixed deposit rates to win your business.

Getting your money out of a fixed deposit account

You might need to access your funds before your fixed deposit term ends. While this is possible, it often comes with some drawbacks.

Banks usually charge fees if you take out money before the agreed-upon date. These fees can vary based on your bank and the terms of your account. It’s important to check these details when you open your account.

Besides fees, you might lose some of the interest you’ve earned. Banks may lower the interest rate on early withdrawals. This means you could end up with less money than you expected.

Some banks allow you to take out part of your money instead of all of it. But even for partial withdrawals, you might face penalties or reduced interest.

In emergencies, your bank might let you withdraw without penalties. This depends on your bank’s rules and what counts as an emergency. It’s best to ask your bank about their policies for urgent situations.

Fixed deposit accounts aren’t meant for quick access to your money. They’re designed for people who can leave their funds untouched for a set time. If you think you’ll need your money soon, a different type of account might be better for you.

Before you take money out early, read your account agreement carefully. Look for information about:

• Penalties for early withdrawal
• How much interest you might lose
• Rules for taking out only part of your money

If anything isn’t clear, don’t hesitate to ask your bank. They can explain what will happen if you withdraw your money early.

Benefits of a fixed deposit account

Fixed deposit accounts offer several advantages for savers. You get a safe place to keep your money while earning interest. Let’s explore the key benefits:

a) Safety and stability

Your funds are protected in a fixed deposit account. Banks in Kenya offer between 7%-10% interest on these accounts. This means you know exactly how much your savings will grow. You don’t have to worry about market ups and downs affecting your money.

b) Predictable returns

With a fixed deposit, you lock in an interest rate for a set time. This allows you to plan your finances better. You can count on receiving a specific amount when the term ends. This predictability helps you work towards your money goals with confidence.

c) Low risk option

Fixed deposits are a good choice if you want to avoid risk. Unlike stocks or crypto, you won’t lose your initial deposit. Your money stays safe even if the economy takes a downturn. This makes fixed deposits ideal for emergency funds or short-term savings goals.

d) Flexibility in terms

You can choose how long to keep your money in a fixed deposit. Terms can range from a few months to several years. Longer terms often earn higher interest rates. You can pick a timeline that fits your needs and maximizes your returns.

e) Helps build savings habits

A fixed deposit account encourages you to save regularly. You commit to leaving your money untouched for a set period. This can help you develop good savings habits and avoid impulsive spending.

f) Easy to open and manage

Opening a fixed deposit account is simple. Most banks offer online applications. You don’t need special financial knowledge to use these accounts. They’re straightforward and easy to understand.

g) Potential for higher returns

Fixed deposits often pay more interest than regular savings accounts. This means your money grows faster. Some banks in Kenya offer attractive rates to encourage long-term savings.

h) No maintenance fees

Unlike some other accounts such as current and transactional accounts, fixed deposits usually don’t charge monthly fees. This means you keep more of the interest you earn. Your savings grow without being eaten away by charges.

How to get paid from your fixed deposit

Fixed deposits offer two main ways to receive your interest:

1. All at once
2. Regular payments

With the all-at-once option, you get your original deposit plus all the interest when your term ends. This can be good if you want a bigger payout later.

The regular payment choice gives you interest at set times. You might get paid monthly, every 3 months, twice a year, or yearly. This works well if you need extra cash more often.

Not all banks offer monthly payments. Some only pay every 3 months or less often. Check with your bank to see what choices you have.

Fixed deposits come in different currencies and time periods. You can often pick Kenya Shillings, US Dollars, or British Pounds. Terms can be as short as 7 days or as long as a year or more.

The minimum deposit varies by bank. It might be 50,000 shillings or more. Longer terms and bigger deposits usually earn more interest.

Make sure you won’t need the cash before your term ends. You can’t take out your money early without paying a fee.

Drawbacks of fixed deposit accounts

Fixed deposit accounts may seem like a safe bet, but they come with some downsides you should know about. Let’s explore the potential pitfalls of locking your money away.

Low returns can be a big issue. Your money might not grow as fast as you’d like. Other investments, like stocks or real estate, could give you more bang for your buck. Sometimes, the interest you earn might not even keep up with rising prices.

Getting your hands on your cash can be tricky. If you need money in a hurry, you’re out of luck. Taking out funds early often means paying fees or losing interest. It’s not as easy as using a regular savings account.

Interest rates can be a double-edged sword. Once you’ve set up your account, you’re stuck with that rate. If rates go up later, you miss out on better deals. This can be frustrating if you see others earning more on their savings.

Here’s a quick look at some key drawbacks:

• Lower earnings compared to riskier investments
• Hard to access your money before the set time
• Might miss out on better interest rates
• Could lose money to inflation over time

Fixed deposit accounts in Kenya typically offer interest rates between 7% and 10%. But remember, the government takes a slice of your earnings. You’ll need to pay 15% tax on the interest you make.

It’s also worth noting that your money might not work as hard for you as it could. By putting cash in a fixed deposit, you might miss chances to invest in something that could grow more over time.

Think about inflation too. If prices are rising faster than your money is growing, you’re actually losing buying power. Your $100 today might not buy as much in a few years, even with interest added.

Some banks ask for a big chunk of cash to open a fixed deposit. This might be more than you want to set aside. It could leave you short on money for other needs or investments.

How to get your money from a fixed deposit when it matures

When your fixed deposit reaches its maturity date, you’ll want to access your funds. Here’s what you need to do:

1. Check for bank notifications

Many banks will send you a reminder as your maturity date approaches. This could come via email, text message, or regular mail. Keep an eye out for these notices.

2. Visit your bank branch

On or after the maturity date, go to the branch where you opened the account. Bring a government ID like your driver’s license or passport.

3. Fill out the withdrawal form

Ask a bank employee for a withdrawal form. You’ll need to provide:

• Your account number
• The amount you want to take out
• Your signature

Double-check all the details before you submit the form. Mistakes could slow down the process.

4. Show your fixed deposit certificate

Give the bank your fixed deposit certificate or receipt. This proves you made the investment.

5. Choose how to receive your money

You can usually get your funds in two ways:

• Direct deposit to your linked current bank account
• A check made out to you
• Pay to M-PESA or Airtel Money

6. Decide on next steps

After taking out your money, you have options:

• Close the account if you don’t need it anymore
• Start a new fixed deposit term to keep earning interest

How to get a loan using your fixed deposit

You can use your fixed deposit account to get a loan quickly and easily. This type of loan lets you borrow money without cashing out your savings early.

Here’s what you need to know:

Banks generally offer loans of up to 80% – 90% of your fixed deposit amount. The exact percentage depends on the bank’s rules.

You’ll usually get a lower interest rate compared to other loans. This is because your fixed deposit acts as security for the bank.

The loan term is often linked to when your fixed deposit matures. For example, if you have 6 months left on your fixed deposit, you might be able to get a 6-month loan.

Here are some key benefits:

• Fast approval process
• Lower interest rates than unsecured loans
• No need to break your fixed deposit early
• Keep earning interest on your savings

To apply, you’ll need an active fixed deposit account with the bank. The process is often simpler than other loans since the bank already has your account details.

When you take a loan against your fixed deposit, you have a few repayment options:

• Monthly payments
• Pay all at once when the loan ends
• Pay only interest monthly and the full amount at the end

Some banks let you repay early without extra fees. This can help you save on interest if you have spare cash.

Make sure to understand what happens if you can’t repay the loan. The bank might use some or all of your fixed deposit to cover what you owe. This could mean losing out on interest you would have earned.

Before you apply, compare offers from different banks. Look at:

• Interest rates
• How much you can borrow
• Repayment terms
• Any fees

Remember, your fixed deposit keeps earning interest while you have the loan. This can help offset some of the loan costs.