A Review of the Revamped Absa Digital Savings Account

‍EDITOR’S NOTE: This article is part of our Money254 Partner Series produced in partnership with Absa Bank Kenya to celebrate the launch of their new digital savings account. For more on Absa’s new digital savings account, read here.

UPDATE: Between December 12, 2023 and March 2024, the Absa Digital Savings Account will be offering a 10% per annum interest rate. More details here.

Goodbye to the old, and hello to the new. 

If you’ve been thinking about opening the Absa Digital Savings Account, you will be excited to learn about the new changes the account has implemented to ensure you can get the best out of your savings. 

The Absa Digital Savings Account has made some improvements that were effected in May 2023. They have increased the interest rate to give you higher returns on your savings. But that’s not all; they’ve taken compounding frequency to the next level, maintained daily interest accrual, and eliminated tiered interest payout.  

What do these changes mean, and how much can they increase your returns? This article will review these new changes and examine how to use the Absa Digital Savings Account for everyday needs.

How The Absa Digital Savings Account Works 

A digital savings account is a bank savings account that can be opened and operated fully online. It can be accessed through a smartphone app, mobile browser, laptop, or USSD. Like a traditional savings account, you will be given an account number and see it earn interest.

But unlike traditional bank accounts, the Absa Digital Savings Account is free from limitations such as fines and other restrictions that traditional savings accounts typically have. This flexibility can lead to higher returns and more control over your savings — more on that below.

One of the major advantages of a digital savings account is the convenience it offers. You can create an account online, set up direct deposits, access account history, and make payments from your computer or smartphone.

A digital savings account is a great option if you're looking for a convenient and easy way to save money, and the new changes introduced in the Absa Digital Savings Account take this to the next level. Let’s break it down.

Review of The New Changes 

a) Interest rates adjusted from 7% to 9% per annum

Absa Digital Savings Account customers received a boost to their savings after the bank announced an increase in interest rates from 7% to 9% pa. 

The increase effectively meant that Absa Digital Savings Account has the highest interest rate in Kenya among all savings accounts offered by commercial banks in the country. 

The significant advantage is that you'll earn more money on your savings. A higher interest rate means that your savings will grow at a faster pace over time. 

This can be especially beneficial if you're saving for a specific goal, such as buying a house, funding education, or building an emergency fund. Higher savings account rates can also help you reach your target amount more quickly. This can give you a sense of accomplishment by reducing the time it takes to achieve your financial objectives.

Check Out the Absa Digital Savings Account Interest Calculator Here

b) Transition from quarterly interest accrual to a daily basis.

Interest accrual refers to the frequency at which banks calculate and allocate interest earned on a savings account. Typically, the faster the frequency, the more the account holder benefits. 

Until May, the Absa Digital Savings Account used to calculate interest and pay it out at the end of the quarter (three months). After the changes, the interest still accrues daily, but it is paid out every month. This means that the cumulative interest on your savings account balance is added to your principal amount at the end of every month. 

Daily interest accrual offers three main benefits:

• Clarity: It provides a more accurate reflection of the amount of money you're earning in interest each day since it takes into account balance fluctuations. Since the interest is calculated daily, any deposits, withdrawals, or other transactions that affect your account balance are quickly reflected in the interest calculations. This means that even if you withdraw from your account, you still earn interest on the remaining balance.
• Motivation: Knowing that your savings are growing daily can motivate you to make regular deposits into your savings account. This can help you stay on track with your savings goals and encourage consistent saving discipline as the returns structure incentives you to save more. 

c) Shift in compounding frequency from quarterly to monthly.

Compound interest is “interest earned on interest.” 

When you keep the interest in your account along with your initial savings, you start earning interest not only on the money you originally put in but also on the interest you've already earned. This makes your savings, i.e., the sum of your initial balance and the interest you've gained, grow faster over time.

Until May 2023, Absa Digital Savings Account used to pay interest at the end of a quarter, that is, every three months. However, with the new update, interest is paid out at the end of the month. If you never withdraw your savings, this will increase the compounding frequency. 

The compounding frequency is the number of times per year when the accumulated interest is posted in your account and reinvested. 

By changing the compounding frequency from quarterly to monthly, the Absa Digital Savings Account increased the compounding frequency from 4 to 12 times per year.

Why is this important? 

The more the compounding frequency, the higher your returns. 

Finally, remember that to reap the maximum benefits of compound interest, you will need to increase your saving window. The more time you allow your money to stay in the account and let the interest accumulate, the bigger your returns will be.

Elimination of withdrawal limits

Previously, to get maximum returns on your savings, the account had limited the number of withdrawals to once per quarter. 

Digital savers needed to keep their withdrawals from the account to a maximum of one every quarter to enjoy a 3.5% bonus interest rate that could bring the total interest to 7%. Then, if an account holder were to withdraw more than once a quarter, they would have received only the 3.5% base interest rate.

Alongside increasing interest rates to 9%, the new Absa Digital Savings Account has removed this tiered interest system. You can now withdraw in emergency situations without being penalised or forfeiting earned interest. 

To ensure maximum flexibility for digital savers, the Absa Digital Savings Account has no minimum balance penalty, no withdrawal fees, no deposit fees, or account maintenance (ledger) fees. And given that the interest accrual is daily, you will always earn interest on the balance in your account. This ensures that even if you were to withdraw for emergency purposes, you could always reimburse your account later and continue to earn the maximum returns. 

Uses Cases of Absa Digital Savings Account 

Save for Big Purchases and Short-Term Goals

Not all savings goals are the same, and the length of time associated with a goal plays a major role in creating an effective plan to meet your objective. A goal that’s one or two years will likely require a different approach than one that’s 3 to 5 years in the future.

If you're saving for something that has a shorter time horizon, like a vacation or a household purchase, the Absa Digital Savings Account gives you control and promises higher returns. And if you are saving for a goal that requires capital preservation, such as debt repayments, the account offers daily interest accrual for maximum returns - while still providing the safety and stability of traditional bank accounts. 

Finally, when saving for short-term goals, you'll ideally want to earn a competitive interest rate and the ability to withdraw your money when you need to. The Absa Digital Savings Account offers 9% interest and instant withdrawal to complement those needs.

Keep Your Emergency and Opportunity Fund Accessible

Personal finance rules dictate that you should have an emergency fund for when life happens and you need to settle unexpected expenses. You also need an opportunity fund to help you take advantage of investment prospects. The two funds require you to deposit this money in an account that is accessible. 

The Absa Digital Savings Account has multiple features that ensure flexibility and convenience when saving for these goals, including:

• There is no minimum initial deposit or balance requirement to keep you constrained.
• The account's online nature ensures that account holders can manage their funds and transact anytime, anywhere in the world.
• Optimal liquidity, allowing account holders to instantly access their deposits in the event of an emergency

These accessibility features ensure quick and unrestricted access to funds, making this account suitable for building your opportunity and emergency funds. You can withdraw the required funds without facing delays or penalties.

Track Your Expenses and Savings

The Absa Digital Savings Account offers a compelling solution for those seeking a convenient way to manage expenses and savings. 

The Absa mobile and internet banking platforms offer insightful breakdowns of your monthly expenses to help you better understand your spending habits. When you know where your money is going, you can identify areas to cut down and save yourself from overspending or experiencing a budget deficit.

Check Out the Absa Digital Savings Account Interest Calculator Here

The account also allows you to track your savings goals which means you will know if you are progressing. Tracking your progress can motivate you to achieve your goal within your deadline. The account also allows for automated savings through standing orders from your current account to simplify saving. 

This combination of expense and savings tracking can lead to more informed financial decisions and a smoother path toward achieving your savings goals.

Hedge Your Savings Against Inflation

Inflation shows the cumulative price rise or percentage change in the country's monthly consumer price index (CPI) and reduced purchasing power of the Kenyan shilling. If you follow the news, you must have heard financial experts use this term extensively regarding how it affects your savings and investments. 

According to the Central Bank of Kenya (CBK), the annual inflation rate as of July 2023 was 7.28%. If you had kept your money in a savings account for the past 12 months, your money has lost its purchasing power by 7.28%. That’s because inflation has a corrosive effect on savings.  

To prevent your money from losing its purchasing power, you need to save it in an interest-bearing account that pays higher interest than the inflation rate. Since the inflation rate is 7.28%, your savings account should earn you interest equal to or higher than that. 

The Absa Digital Savings Account pays 9% interest making it ideal for anyone looking to save money and hedge against inflation. The return you earn will cancel out what you lost due to inflation.

WRAPPING UP

Opening an Absa Digital Savings Account is straightforward as the process is completely online. You don't need to visit a branch and queue or deal with tedious paperwork. 

Once you are ready to open the account, the whole process should take you less than 10 minutes, and you can get started by clicking here.

The link will take you to the Absa website, where you can begin your journey to a new way of saving. 

You will land on a "how it works" section which briefly explains how the Absa Digital Saving Account works. Below, click on "Apply Online." 

Once you have clicked "Apply Now," you will be redirected to a new page where you will need to submit your personal details that are required under Kenyan banking law to complete KYC. This includes your identification number, phone number, and address. 

Check Out the Absa Digital Savings Account Interest Calculator Here

Finally, you will be required to upload a picture of your ID document, your signature specimen, and a photo of yourself. You will be given a reference number to track the progress of your account opening process, and voila, you are done!

For step by step guide, read the detailed process of How to Open Absa Digital Savings Account: A Step by Step Guide.