In 2014, two in every three people in Sub-Saharan Africa did not have a bank account. Since then, more and more people have opened bank accounts. For example, in Kenya in 2017 four in every five people held bank accounts. However, many people still only use cash. Although there is nothing wrong with preferring to use cash, it is important to understand the benefits that a bank account can bring.
WHAT IS INTEREST?
Most bank accounts offer an interest rate. This is where the bank will give you a small amount of extra money at the end of the year or month, depending on how much money you put into your bank account. For example, if a bank account offers a 3% interest rate and pays interest annually, then for every 100 units of currency in your bank account, you will get an extra three at the end of the year.
WHY DOES INTEREST MATTER?
Interest is especially important, because of something called inflation. Inflation is the name for the way that prices get higher every year. This means that your food shopping this year probably costs more than last year’s shopping, and last year’s shopping probably cost more than the year before that. As a result, if you were to save money without putting it in a bank, you would find that it could buy you less now than it could have when you first started saving. In effect, money loses value over time.
Interest prevents inflation from making you worse off. Putting money in the bank doesn’t stop prices rising. However, the bank will give you money, which will help to make up for the rise in prices.
SO WHY DON’T PEOPLE USE BANKS MORE?
One of the biggest reasons why people don’t use banks is because they don’t trust them. For this reason, some people prefer to use Saving and Credit Cooperative Organisations, which are owned by users, instead of banks. For some people, this may be a good option, and it is sensible to check whether your money would be protected if anything happened to the bank. This depends on the country, and on the bank. However, it is important to remember that using cash for everything isn’t completely safe either. Carrying around cash may, in some areas, be more dangerous than paying using your mobile phone or a bank card.