For many Nigerians, saving money in a bank account is a familiar way of preparing for the future. After paying bills and meeting daily expenses, whatever remains is put aside for emergencies, rent, school fees or major purchases.
But keeping money in the bank does not necessarily mean preserving its value.
As prices continue to rise, the interest earned on ordinary savings accounts is struggling to keep pace. A depositor may return after a year to find more money in the account, but discover that it can buy less than it could when it was first deposited.
Nigeria’s inflation figures highlight the problem. Headline inflation moderated to 14.63 percent in September 2026 from 15.39 percent in August, according to the National Bureau of Statistics. Food inflation, however, remained high at 19.59 percent.
Although inflation is slowing, prices are still increasing. For households already spending a large portion of their income on food and other essentials, the pressure remains.
The situation is particularly concerning for savers. Central Bank of Nigeria data show that the average savings deposit rate stood at 7.46 percent in August 2026, against inflation of 15.39 percent in the same month.
The gap shows that ordinary bank deposits are struggling to preserve the purchasing power of Nigerians’ savings.
When more money buys less
Consider someone who deposits N1 million in a savings account and leaves it untouched for one year.
At an annual interest rate of 7.46 percent, the account would earn N74,600, bringing the balance to N1.0746 million before applicable charges or taxes.
However, adjusting the balance for August’s inflation rate of 15.39 percent gives it a real purchasing power of approximately N931,277 in August 2026 naira.
The depositor has gained N74,600 in interest but lost approximately N68,723 in purchasing power.
This is the difference between nominal and real returns. Nominal returns show how much an investment earns in naira, while real returns account for the effect of inflation.
In this case, the savings account delivers a negative real return of approximately 6.87 percent.
It is a reminder that a growing bank balance does not necessarily mean growing wealth.
Bank deposits versus the money market
The CBN’s August 2026 indicators show that the average three-month deposit rate was 10.34 percent, while the savings deposit rate stood at 7.46 percent.
Both were below the month’s 15.39 percent inflation rate.
Even customers willing to lock their money away for a fixed period were not necessarily earning enough to preserve its value.
The difference partly reflects how banks determine deposit rates. Although the CBN’s monetary policy rate influences interest rates across the financial system, it does not automatically determine what commercial banks pay customers.
Banks consider their liquidity, funding requirements, operating costs and competition when setting deposit rates.
Consequently, returns on ordinary savings accounts can remain relatively low even when yields elsewhere in the financial market are higher.
Treasury bills offer better returns
One alternative available to investors is the Federal Government Treasury bills market.
Treasury bills are short-term government securities issued through the CBN. Investors buy them at a discount and receive their full face value at maturity, with the difference representing their return.
At the October 28, 2026 auction, stop rates stood at 15.40 percent for the 91-day instrument, 15.79 percent for the 182-day instrument and 15.80 percent for the 364-day instrument.
Because Treasury bills are sold at a discount, their effective yields differ from the quoted stop rates. After applying the assumed 10 percent withholding tax on discount income, the indicative annualised net yields were approximately 14.41 percent, 15.43 percent and 16.88 percent respectively.
Compared with September’s inflation rate of 14.63 percent, the 91-day instrument offered a slightly negative real return, while the 182-day and 364-day instruments offered modest positive real returns of approximately 0.70 percent and 1.96 percent.
The difference makes Treasury bills more attractive than ordinary savings deposits for investors who can afford to keep their money invested.
However, the annualised yield should not be confused with the actual income earned over the investment period. A 91-day investment, for instance, does not deliver a full year’s return in three months.
Investors must also consider that yields may change when the bills mature and they seek to reinvest.
Money market funds attract more investors
Money market mutual funds are another option gaining attention in Nigeria’s investment market.
These funds pool money from investors and invest in short-term instruments such as Treasury bills, commercial papers and bank placements. They allow individuals to participate in the money market without having to purchase and manage individual securities themselves.
Data from the Securities and Exchange Commission’s weekly fund valuation report for the week ended October 9, 2026, showed that Nigeria’s 49 money market funds had combined assets of approximately N6.72 trillion and 927,990 unitholders.
The NAV-weighted average reported yield was 16.85 percent, while the median stood at 16.91 percent. Some individual funds reported yields above 20 percent.
These returns were considerably higher than the average savings deposit rate.
However, fund yields fluctuate with market conditions and portfolio performance. Investors should check whether quoted returns are before or after management fees, understand the applicable tax treatment and examine redemption conditions.
Money market funds are also not insured bank deposits. Their returns and capital are not guaranteed.
The cost of keeping savings idle
The difference becomes more significant when larger amounts are involved.
A household with N5 million in a savings account earning 7.46 percent would have approximately N5.373 million after one year, before applicable charges or taxes.
But using August’s inflation rate of 15.39 percent, that balance would have purchasing power equivalent to approximately N4.656 million in August 2026 naira.
The household would have lost about N343,617 in real purchasing power despite earning N373,000 in interest.
For someone saving towards rent, a house, a car or school fees, that difference can affect whether the original financial target remains achievable.
This does not mean Nigerians should abandon savings accounts. They remain useful for emergencies, daily transactions and funds that may be needed at short notice.
The issue is leaving substantial amounts in low-interest accounts for extended periods without considering how inflation affects their value.
A challenge for banks and policymakers
The gap between deposit rates and returns available in the money market also raises questions about how monetary policy benefits ordinary customers.
Banks depend on customer deposits to support lending and other financial activities, yet the interest paid on many savings accounts remains considerably below the yields available on government securities.
For the CBN, the challenge is ensuring that monetary policy decisions translate across the financial system without undermining financial stability.
While higher interest rates can influence borrowing costs and investment returns, their impact on ordinary depositors is not always immediate or equal.
For households, however, the concern is more direct: how to preserve savings without taking risks they cannot afford.
Saving is no longer enough
Nigeria’s current interest rate environment is exposing the difference between accumulating money and preserving wealth.
A savings account offers convenience and liquidity, but it may not provide sufficient returns to protect purchasing power over time.
Treasury bills and money market funds offer alternatives, although each comes with its own risks, costs and liquidity arrangements.
The choice ultimately depends on when the money will be needed and how much risk the investor can tolerate.
For Nigerians, the bigger question is no longer simply how much they can put aside every month.
It is what that money will still be worth when they need it.
A bank balance may continue to grow, but if prices rise faster than the interest earned, the depositor is effectively losing ground.
COURTESY: Businessday
