Where to Keep Your Money in 2024 Based on Returns

If you want to grow your savings and make your money work for you, simply stashing away cash won't cut it. You need to find instruments that promise higher returns than your traditional savings account. Fortunately, there are many saving and investing options that offer high returns to choose from.

Keeping your money in saving/investing vehicles with higher returns is crucial for multiple reasons. 

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First, earning higher returns that outpace inflation protects the value of your money and allows you to maintain your purchasing ability. Second, it can accelerate the growth of your savings, enabling you to achieve your financial objectives sooner. Finally, when reinvested, higher returns can fuel the compounding process, allowing your money to grow exponentially over time.

Wondering where to find these higher returns in Kenya? This article will explore five places where you can keep your money in Kenya for higher returns and the pros and cons of each of them.

Read Also: Why Where You Put Your Money Matters

1. Treasury Bills and Bonds 

Treasury Bills and Bonds are fixed-income securities issued by the government to raise funds to support gov't initiatives. Treasury Bills are short-term debt instruments with maturities ranging from 91 days, 182 days, and 364 days, while bonds are long-term debt securities with maturities typically ranging from 2 to 30 years. 

Treasury Bills are sold at a discount. For example, if you invest in a 91-day Treasury bill, you will pay less than the bill's face value, but after it matures, you will receive the full face value. The minimum you can invest is Ksh100,000. 

Investing in treasury bonds involves lending money to the government for a specified period, which is the bond's maturity. With most bonds, investors will receive interest payments every six months throughout that period, and at the end of that period, they receive the face value amount that they invested. The minimum you can invest is Ksh50,000. 

You will need a bank account and open CDS with the Central Bank of Kenya to invest directly in treasury bills and bonds. You can also invest indirectly through your commercial bank, investment bank, or investment schemes like MMF. 

The returns on Treasury Bills and Bonds can vary based on prevailing interest rates and the maturity period of the security. Generally, the returns on Treasury Bills tend to be lower than Bonds due to their shorter maturity periods.

The Previous Average Interest Rate of treasury bills for 91 days, 182 days, and 364 days was 16.5895%, 16.7344%, and 16.9194%, respectively. Meanwhile, at the most recent bond auction in mid-February 2024, the CBK sold 8.5-year securities at 18.4607%. 

Pros and Cons:

Pros:

• Treasury Bills and Bonds are considered low-risk investments since the government backs them.
• Investors receive regular interest payments if they invest in bonds, providing a predictable income stream.
• Some Treasury Bonds can be easily bought and sold in the secondary market before maturity, providing liquidity to investors.
• They offer diversification benefits to investment portfolios, especially for investors seeking stable returns.
• Returns typically keep pace with inflation, leading to a preservation in purchasing power over time.

Cons:

• Redeeming your securities before they mature can result in losses, as the CBK will buy them back at a punitive rate. 
• Treasury bills cannot be traded in a secondary market like bonds, making them more illiquid. 
• Some bonds may have longer maturity periods, limiting flexibility for investors with short-term horizons.
• Treasury bills and bonds have a higher minimum capital requirement than other instruments.

Read Also: Is Investing in Government Bonds a Good Idea? 

2. Saccos Deposits 

Saccos are a member-owned financial cooperative that provides various financial services, including savings, loans, and investments. Sacco Deposits refer to savings accounts offered by Savings and Credit Cooperative Organizations (Saccos) in Kenya. 

To open an account and invest in Sacco Deposits, individuals need to become members of a Sacco by purchasing shares and meeting membership requirements.

When you join a Sacco, you are also required to open a savings account where you will make minimum monthly contributions. The deposits you make to this account will earn you interest, which is paid at the end of the financial year. The deposits are also non-withdrawable, and the only way to access them is to borrow a loan against them or close your account and wait two months for your savings to be refunded. 

The returns on Sacco Deposits can vary depending on the financial performance of the Sacco and prevailing interest rates. However, Sacco members can earn returns on their deposits through competitive interest rates, which are typically higher than those offered by traditional banks.

In addition to interest earned on deposits, Sacco members can also earn dividends on their shares in the Sacco. Sacco members can purchase shares in the Sacco as part of their membership requirements. These shares represent ownership in the Sacco and entitle members to participate in the Sacco's profits and decision-making processes.

Saccos distribute a portion of their profits to members in the form of dividends, which are typically paid out annually. Dividends provide members with an additional source of income, creating a double income stream where savings earn interest and share capital earns dividends.

The Sacco Sector in Kenya has been growing, and in 2023, Sacco deposits passed a trillion shilling mark. With this growth came an increase in revenues and profits. So far in 2024, several Saccos have declared profits, and members are smiling to the bank. 

According to an analysis by The Star, Sacco members are reaping big from higher dividends of up between 12% and 20% on share capital. Depending on the Sacco, members' deposits also earned interest ranging from 8.5% to 13% pa.

Pros and Cons:

Pros:

• Competitive Returns: Sacco Deposits often offer higher interest rates than traditional bank savings accounts.
• Member Ownership: Saccos are owned and governed by their members, providing a sense of community and ownership.
• Dividends: Besides interest on deposits, members can earn dividends on their share capital, enhancing overall returns.
• Access to Credit: Sacco members may have access to affordable credit facilities for various financial needs, from addressing emergencies to buying land.

Cons:

• Limited Liquidity: Saccos typically impose withdrawal restrictions and require a two-month notice period for accessing funds, limiting liquidity.
• Membership Requirements: Becoming a member of a Sacco typically requires purchasing shares and meeting eligibility criteria, which may vary by Sacco.
• Governance Risks: The financial performance and governance of Saccos can vary, leading to potential risks for members' savings in the event of mismanagement.

Read Also: Frequently Asked Questions About Saccos in Kenya

3. Money Market Funds 

Money Market Funds are investment vehicles that invest in short-term, low-risk securities such as Treasury Bills, Commercial Papers, and fixed deposits. They aim to provide investors with stable returns and high liquidity by investing in highly liquid and safe assets.

Investors can open an account and invest in Money Market Funds through licensed fund managers or financial institutions that offer these funds in Kenya, such as commercial banks, investment banks, and insurance firms. 

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Returns on Money Market Funds are typically in the form of interest income generated from the underlying securities in the fund's portfolio. The returns on MMFs can vary based on prevailing interest rates and the performance of the underlying assets. 

According to an analysis by Vasili Africa, the average daily effective rate for money market funds rose to 13% per annum in January 2024, up from 12.51% in December 2023. This increase was attributed primarily to rising interest rates in government securities such as treasury bills, a key asset class for these funds.

Pros and Cons:

Pros:

• Safety: Money Market Funds invest in low-risk securities, making them relatively safe investment options.
• Liquidity: Investors can easily buy and sell shares in Money Market Funds, providing high liquidity compared to other investment options. Some funds might come with withdrawal limitations. 
• Diversification: Money Market Funds offer diversification benefits by investing in various short-term securities.
• Professional Management: Funds are managed by experienced fund managers who make investment decisions on behalf of investors.

Cons:

• Returns on Money Market Funds may be lower than riskier investment options such as equities and long-term saving vehicles like Saccos.
• The value of Money Market Funds can be affected by changes in interest rates and low performance in the underlying securities, which may impact returns.
• Unlike Sacco deposits and Fixed deposits, investors can't borrow against their savings in MMFs.
• Investors may incur management fees, taxes, and other expenses associated with investing in Money Market Funds.

Read Also: Money Markets Funds in Kenya: Features and Key Considerations 

4. Unit Trust Funds

Unit Trust Funds are investment vehicles where investors pool their money together to invest in a diversified portfolio of assets such as stocks, bonds, and other securities. These funds are managed by professional fund managers who make investment decisions on behalf of investors. Investors can open an account and invest in Unit Trust Funds through licensed fund managers or financial institutions that offer these funds in Kenya. 

Unlike MMFs, which primarily invest in short-term, low-risk securities, Unit Trust Funds have a broader investment mandate. They can invest in various asset classes, including stocks, treasury & corporate bonds, and real estate. Additionally, Unit Trust Funds aim to provide investors with capital appreciation and income over the long term. In contrast, Money Market Funds focus on delivering stable returns and high liquidity in the short term.

Returns on Unit Trust Funds can vary depending on the performance of the underlying assets and the fund manager's investment strategy. These strategies include investing in bonds such as government securities & corporate bonds, equities such as NSE-listed companies, or balanced funds that invest multiple assets of varying risk profiles. 

Like MMFs, Unit Trust Funds have been gaining popularity among Kenya. According to the latest data from the Capital Market Authority (CMA), the total assets under management held by unit trusts crossed the Sh200 billion mark for the first time in September 2023, revealing the continued growth of pooled funds as a popular investment option.

Pros and Cons:

Pros:

• Diversification: Unit Trust Funds offer diversification benefits by investing in various asset classes, reducing the overall risk of the investment portfolio.
• Professional Management: Funds are managed by experienced fund managers who make informed investment decisions on behalf of investors.
• Potential for Higher Returns: Unit Trust Funds have the potential to generate higher returns compared to Money Market Funds over the long term.
• Accessibility: Investors can access a wide range of investment opportunities through Unit Trust Funds. However, the initial capital requirement might be high depending on the specific fund.

Cons:

• Market Risk: Unit Trust Funds are exposed to market fluctuations, and returns may be volatile, especially for equity funds.
• Fees: Investors may incur management fees and other expenses associated with investing in Unit Trust Funds, which can impact overall returns.
• Lack of Control: Investors have limited control over the investment decisions the fund manager makes, which may not align with their individual investment preferences.
• Liquidity Risk: Some Unit Trust Funds may have restrictions on redemption, limiting liquidity during certain periods.

Read Also: Difference Between Unit Trusts and Money Market Funds

5. High Interest Fixed Deposits 

Fixed Deposit Accounts, or term deposit accounts, are savings accounts where funds are deposited for a fixed period at a fixed interest rate. These accounts typically offer higher interest rates compared to regular savings accounts.

Investors can open a fixed deposit account with banks or Saccos by depositing a lump sum of money for a specified period, ranging from a few months to several years. 

Fixed deposit accounts differ from traditional savings accounts because they offer higher interest rates but require the funds to be locked in for a predetermined period. Traditional savings accounts provide more withdrawal flexibility, while fixed deposit accounts may charge penalties for early withdrawal. The higher interest rates offered by fixed deposit accounts are due to the longer commitment period and lower liquidity of funds.

Returns on fixed deposit accounts are determined by the interest rate the bank or financial institution offers and the deposit duration. Typically, longer-term deposits and larger deposit amounts attract higher interest rates. While traditional savings accounts offer returns of between 4% and 7%, fixed deposit accounts can offer higher rates of between 9% and 16%, depending on the bank.

Pros and Cons:

Pros:

• Fixed deposit accounts offer higher interest rates compared to traditional savings accounts, providing an opportunity for greater returns on savings.
• The interest rate is fixed for the duration of the deposit, providing guaranteed returns regardless of market fluctuations.
• Fixed deposit accounts are considered low-risk investments since they are typically insured by deposit insurance schemes and backed by the bank's assets.
• Fixed deposit accounts encourage disciplined savings by locking in funds for a specific period, preventing impulsive withdrawals.
• Some banks will let you borrow against your savings if you want to access your money but are unwilling to close your account and suffer penalties. 

Cons:

• Funds deposited in fixed deposit accounts are not readily accessible, and early withdrawals may incur penalties, making the illiquid saving vehicle.
• Locking funds in a fixed deposit account may prevent investors from taking advantage of higher-return investment opportunities that may arise.
• Fixed deposit rates are fixed for the duration of the deposit, so investors may miss out on higher rates if market interest rates increase during the term.

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Read Also: How to Build Passive Income Using Fixed Deposits in Kenya

WRAPPING UP 

While aiming for good returns is important, remember it shouldn't be the sole factor driving your saving and investment decisions. To maximize your returns, minimize losses, and invest according to your risk tolerance, consider these crucial aspects:

• Your investment and savings goals: Are you saving for short-term goals like a vacation, or long-term goals like retirement? Different goals have different risk tolerances and optimal investment horizons.
• Investment time horizon: How long can you leave your money invested before you need it? Longer time horizons allow for investments with higher potential returns and greater risk.
• Fees and expenses: Research the costs associated with different investment options, as they can eat into your returns significantly.
• Portfolio diversification: Spreading your investments across various asset classes can help mitigate risk and smooth out market fluctuations.

Read Also: The 10 Golden Rules of Investing You Should Know