5 Important Facts to Know When Putting Your Money in Umba’s 16% Interest Account 

EDITOR’S NOTE: This article is part of our Money254 Partner Series produced in partnership with Umba to celebrate the launch of their fixed deposit savings account.

Over the past three years, the economic world order has suffered many shocks that started with the pandemic, followed by war and instability in some parts of the world. 

Kenyans have not been spared in the series of disruptions that have seen many people lose their jobs while many others have had to adjust their budgets downwards to protect their savings.

In this environment of volatility, uncertainty, and low economic activity, many people have actively sought to preserve the money they already have by building passive income and protecting their money from the depreciating effect of inflation. 

In Kenya, some of the popular investment vehicles include rental income, Sacco deposits, shares in listed companies, Money Market Funds (MMFs), and fixed deposit accounts, among others. 

Amid the uncertainty and volatility in the economy, fixed deposits stand out when it comes to assured returns. Indeed, out of all the examples given above, none offers a pre-determined and fixed rate. 

The income earned from rental property, Sacco shares, shares in listed companies, and MMFs is all determined after the review of the market performance - usually after a year save for MMFs which pay dividends based on the fund’s performance at the end of the day. 

In this article, we offer a quick review of the Umba Fixed Deposit Account, a product offered by Umba Bank. 

1. Umba Bank Operations are regulated by the CBK

The Umba Fixed Deposit account is offered by Umba Bank, which is licensed and regulated by the Central Bank of Kenya (CBK) as a deposit-taking Microfinance Bank. As per Kenyan law, Umba deposits are insured by the Kenya Deposit Insurance Corporation (KDIC). 

The Umba Fixed Deposit offers various lock periods with varying annual interests as follows: 

• 30 days (1 month) - 12% p.a
• 90 days (3 months) - 13% p.a
• 180 days (6 months) - 14% p.a
• 270 days (9 months) - 15% p.a
• 365 days (1 year) - 16% p.a 

As a fully digital bank, Umba offers its Fixed Deposit Account on a digital platform - allowing investors to open and place their deposits from their mobile app. 

2. How is a Fixed Deposit is Able to Pay High Interest?

Fixed Deposits, also known as term deposits, are therefore a common investment tool for Kenyans looking to protect their wealth from market fluctuations. 

Fixed Deposits vary from regular savings accounts in the sense that you lock your money with a given financial institution, during which it accrues interest at a pre-agreed fixed rate. 

The commitment to leaving funds untouched for a specified duration in exchange for a guaranteed return sets fixed deposit accounts apart in terms of predictability and assurance of returns. 

Earlier this month, the Central Bank of Kenya (CBK), through its Monetary Policy Committee (MPC) added a two-percentage increase (200 basis points) to the base lending rate. This saw the Central Bank Rate rise to 12.5% - the highest September 2012 (when it stood at 13%). 

The increased CBR has affected various sectors of the economy in different ways but one silver lining has been the increase in earnings against bank deposits. As banks are now allowed to charge higher interest rates on credit, they are now willing to pay higher for deposits - both regular savings deposits and fixed deposit accounts. 

3. How Does Umba Compare to Other Investment Options

The Umba Fixed Deposit offers an interest rate of 16% for deposits held for one year. This is well above Kenya’s inflation rate, making ideal for preserving your wealth from the vagaries of inflation. 

The Umba interest rate compares competitively with other passive income investment vehicles. Research by Money254.co.ke shows that Saccos deposits pay an annual interest rate of between 6-14% per annum. MMFs, on the other hand, offer an annual return rate of between 9 and 13%. 

According to a report released by HassConsult for the first quarter of 2023, real estate assets in Nairobi experienced a 2.2% increase in value within the past year, whereas rental income decreased by 1.2% during the same timeframe.

As discussed earlier, one of the perks of having a Fixed Deposit Account is the predictability of your return. The Umba Fixed Deposit offers pre-agreed interest rates which are disclosed before you lock your money. 

This stands out in today’s environment where economic uncertainties are ever-present. Of all the passive investment options available in Kenya, fixed deposits and government securities stand out when it comes to assured returns - offering you a chance to plan your financial future. 

For example, if you pay Ksh50,000 every January for your child's school fees, it is possible to calculate how much deposits you need to lock in the Umba fixed deposits so that you can always have the fees paid without actively working for it. 

This would mean you locking Ksh312,500 a year before the school fees fall due. Subsequently, the Ksh50,000 fees balance would be paid out from the interest earned from the Umba Fixed Deposit Account each year (16%). 

4. Who Qualifies for the Umba Fixed Deposit?

There is a variety of Fixed Deposit Accounts to choose from in Kenya depending on your preference. 

However, most Fixed Deposit accounts have some eligibility criteria such that you must have a minimum balance in order to lock your balance with some financial institutions. 

Moreover, the rates offered for Fixed Deposits have traditionally been dependent on the amount of money being deposited. Those with huge amounts are able to negotiate higher rates. 

Some Money Market Funds (MMFs) actually earn money by collecting small amounts which accumulate into a big fund which can earn higher interest in a Fixed Deposit Account. 

The Umba Fixed Deposit account, however, stands out as it offers a higher interest rate that is also uniform across the board regardless of the amount you lock. The minimum amount you can lock is Ksh5,000 which makes it accessible to a wide range of clients with different financial capabilities. 

5. Getting Back Your Money From Umba Fixed Deposit

The Umba Fixed Deposit offers passive income while at the same time extending some level of liquidity. Liquidity refers to the degree to which you can get back your investment without losing its monetary value.

The flexibility of tenure (1, 3,6, 9 and 12 months) offered in the Umba Fixed Deposit account enhances liquidity. For instance, if you have saved up some money that you intend to spend in February, say for a vacation, you can utilise it by locking it for one month and earn a 12% annual interest rate. 

You can also utilise the various lock periods to ensure you are getting regular payouts of interest. For example, if you have Ksh1 million, you can lock Ksh250,000 in four fixed deposits of three months each ensuring every three months you get a payout. 

Wrapping Up 

The Umba Fixed Deposit account has one of the highest returns among passive investment options in Kenya. It offers up to 16% annual interest which makes it ideal for consideration when looking for an investment option that is above Kenya’s inflation rate. It also offers liquidity on account of the pre-agreed lock period which increases the range of use including for both long-term and short-term investment needs.