If Your Savings aren’t Earning Interest, You’re Losing Money.
Earning interest on savings is a fundamental step towards building and protecting wealth, yet it is often ignored by many Ugandans who for a very long time have relied solely on traditional bank savings accounts. While these accounts provide safety and liquidity, they typically offer very low interest rates and sometimes so minimal that they barely keep up with inflation. This means that the real value of your money can decline over time if interest earned does not exceed the rate at which prices are rising.
During periods of high inflation, the purchasing power of your money reduces rapidly. For instance, inflation in Uganda has fluctuated between 3-6% in recent years but bank savings accounts pay only 5% interest or less. This means that your money effectively loses value over time, reducing the ability to maintain your standard of living or achieve your financial goals. Inflation also impacts investments more broadly by eroding returns and increasing the cost of goods and services, which can strain household budgets and reduce disposable income.
Earning high interest or exploring alternative investment options allows you to protect your savings from inflation, grow your wealth over time, and preserve financial stability.
Types of High-Interest Savings Accounts.
1. Medium- to Long-Term Government Securities.
Government securities are debt instruments issued by the government to raise funds. These include Government bonds and Treasury bills. when you invest in these securities, you are effectively lending money to the government in exchange for a fixed interest rate over a specified period, ranging from 3 months to 25 years.
Benefits of investing in government securities.
- Higher returns than traditional savings accounts: Government securities generally pay better interest rates than bank deposits. Currently at 18%
- Safety: They are considered low-risk because they are backed by the full faith and credit of the government.
- Predictable income: The fixed interest payments allow investors to plan for future expenses or savings goals.
2. Unit Trust Funds / Money Market Accounts.
Unit trusts pool money from multiple investors to buy a diversified portfolio of investments, such as stocks, bonds, or short-term money market instruments. Money market accounts within unit trusts usually invest in low-risk, short to medium term instruments like government bills and fixed bank deposits.
Benefits of investing in Unit trust funds.
- Professional management: Experienced fund managers handle investment selection, diversification, and risk management hence high and consistent returns.
- Higher interest potential: Returns are usually higher than traditional savings accounts, especially in well-managed money market funds.
- Liquidity: Many funds allow investors to redeem units quickly, giving access to money when needed.
- Flexible and affordable: Unit trusts allow an initial minimum investment of 100k with minimum none mandatory top ups of as low as 50k.
3. Corporate Bonds
Corporate bonds are debt instruments issued by companies to raise capital. By buying a corporate bond, an investor lends money to the company for a fixed period in exchange for periodic interest payments and the return of principal at maturity.
Benefits of investing in a corporate bond.
- Higher interest rates than government securities or bank deposits: Companies offer higher returns to compensate for slightly higher risk.
- Fixed income: Investors receive predictable interest payments.
- Diversification: Including corporate bonds in your portfolio balances risk and stabilizes returns.
4. Private Placements
Private placements are investments where securities (debt or equity) are sold directly to a small group of investors, often institutional investors or high-net-worth individuals, rather than offered publicly. They can include private bonds, private equity, or special investment notes.
Benefits of investing in Private placements.
- Higher returns: Private placements often offer higher interest rates or yields than public instruments to attract investors.
- Exclusive opportunities: Investors can access niche markets or growth-oriented projects not available in public markets.
Need some help getting started? You can schedule a consultation with our advisors.
