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

The cost of living crisis continues to affect households around the world and Kenya has not been spared. Many Kenyans are anxious about the future as the high cost of living has resulted in rising inflation which has reduced the purchasing power of many households. 

Indeed, a common conversation is how much more Kenyans are having to pay to fill the same shopping bag than they used to a few years ago. 

The same conversation is happening with car owners. The cost of a full-tank of fuel has nearly doubled in about three years - but incomes have not grown at the same pace. 

The immediate effect on the cost of living crisis has been a strain on household budgets. Many are having to cut down on their secondary expenses to accommodate the rise in the price of basic necessities. 

Some are moving to cheaper houses or to more affordable neighbourhoods, while others are switching from private to public transportation. As these sacrifices become more common, so is the need to build up savings as a cushion against the unexpected. 

Indeed, even with these personal sacrifices, there is still growing uncertainty about what the future portends. What if I lost my job in this situation? Where can I get an extra income? How can I save more when my expenses are always going up? What passive income streams can I try? 

However, it is not all gloom and doom, with the right strategy, you can preserve your money’s purchasing power and build up enough capital to continue pursuing your most cherished financial goals. 

One way to do this is to make sure that the money you have already worked so hard to earn and save, equally works for you. And this is the concept of passive income - which has been recommended by experts in personal finance as an effective way of building a cushion against inflation and the rising cost of living. 

In Kenya, there are a wide array of ways to earn passive income. They range from starting a hands-free side business, investing in the stock market, government securities, Sacco shares, affiliate marketing and high-yield savings accounts among others.

In this article, we discuss the Umba Savings Account - a high-yield savings account that can be a source of passive income and capital preservation - we review how it works, terms, use cases, as well as how to go about opening one to help you decide if it is right for you. 

What is Umba?

Umba is a digital bank that has operations in Kenya and in Nigeria. In July 2022, the Central Bank of Kenya okayed Umba’s acquisition of Daraja Microfinance Bank, as part of the financial institution’s expansion plan for Africa. 

How Umba Works

In addition to having a regular current account referred to as the “wallet”, Umba Kenya operates two savings products, a fixed deposit savings account and a regular savings account. 

As a fully digital bank, Umba leverages technology to offer these savings products, allowing you to save with the click of a button through the mobile app. 

It is also possible to check balances, track your deposits, and the interest earned all from the convenience of your mobile device. 

For the fixed deposit account, Umba offers a 16% interest rate when you lock your savings for one year (12 months). You can also lock your savings for 1 month at 12% per annum, 3 months at 13% per annum, 6 months at 14% per annum, and 9 months at 15% per annum. The minimum you can keep in the Umba Fixed Deposit account is Ksh5,000. 

For people who are not sure of when they may need their money back and do not wish to lock their savings,  Umba also offers a standard savings account. 

The standard Umba savings account offers 5% interest per annum on your deposits, paid out monthly.  This means your savings also benefit from compound interest. There is no minimum balance or a limit on withdrawals for this account. 

What the Umba Fixed Deposit Savings Account Offers 

Wealth Preservation

One of the greatest threats you have to the money you are earning today through your hard work is inflation. Inflation depletes the future value of the money you have today. In other words, the Ksh10,000 you have today, if not utilised, will be worth a lot less in two to three years' time.

For example, a motorist who uses Super Petrol, in October 2021 with Ksh10,000, they would have bought a total of 77 litres (Ksh129.72 per litre). But in October 2023, with the same Ksh10,000, they can only buy 46 litres (Ksh217.3 per litre). 

The Umba Fixed Deposit Account offers the assurance of the preservation of your money’s purchasing power with a predetermined 16% annual interest rate if you lock your savings for 12 months. This is significantly higher than the annual inflation rate which in 2022 was 7.66%. 

By earning a guaranteed interest over a specified period, individuals can effectively preserve and grow their wealth, even in times of economic turbulence or fluctuating market conditions.

This predictability shields your money from the volatility and uncertainty of inflation. The 16% return competes quite competitively with other investment options including real estate, market market funds (MMFs), Saccos, and bonds. 

In 2022, the average annual yield among MMFs in Kenya ranged between 9-11%. Dividends paid out on Sacco deposits averaged 12-15% while bonds, which have a much higher lock period paid between 14-17% per annum. 

According to HassConsult’s Property Index for the first quarter of 2023, real estate properties in Nairobi recorded a 2.2% growth over the past year, while rental prices declined by 1.2% over the same period. 

Passive Income

Passive income refers to money that you earn without actively working for it. Passive income has particularly become a lifesaver amid the difficult economic times when the cost of living is going up and entrepreneurs are making less as Kenyans seek to cut on spending. 

The Umba Fixed Deposit Account offers a strategic opportunity to earn passive income through the interest earned on your deposits. For example, if you were to deposit Ksh500,000 and lock it for a year, you would earn Ksh80,000 at the end of the year - which is equivalent to Ksh6,800 every month. 

If you have a child in secondary school, for example, you could be using this money to settle their annual school fees - capped at Ksh54,000 for Category A public boarding schools - without ever needing to work for it. 

Goal-based Savings

Goal-based savings involves saving money with a predetermined goal. For example, you could be saving to buy a plot of land valued at Ksh500,000. If you have already saved Ksh300,000, you could consider using the Umba Savings Account for a year as you save up the balance of Ksh200,000. The interest earned would accelerate the earnings and speed up your process of earning your goal. 

Retirement Planning 

Retirement planning is the process of setting financial and lifestyle goals and taking the necessary steps to ensure a comfortable and financially secure retirement. A big part of planning for your retirement is setting up your finances in a way that you can earn regular income in the years when you are retired and not earning active income. 

Fixed deposits such as the Umba Fixed Deposit Account can be a source of steady income in retirement, allowing you a comfortable lifestyle in retirement from the interest earned from the money you earned in your active working period. This is a very low-risk option as compared to other investment types such as real estate and stocks or even starting a business. It could form an important part of your retirement income.

The Umba Fixed Deposit Account enables the account operator to accurately estimate the returns on their investment since the interest rate is predetermined. This predictability allows for better financial planning during retirement. 

Investment Fund

An investment fund involves putting away some money for potential business or personal development opportunities that may come your way. Indeed, one of the realities of the growing economic challenges has been the increase in distress sales or greatly discounted asset sales as businesses and individuals seek to raise cash at a time when there is minimal spending. 

While waiting for opportunities to come your way, you could consider keeping your money in the Umba Fixed Deposit Account. In the event a ripe opportunity comes before the maturity date, you are still able to enjoy the interest earned until that point of withdrawal.

How to Open an Umba Account 

Opening an Umba bank account is a simple digital process that takes less than five minutes. 

• Step 1: Download the Umba App here
• Step 2: Click on “Create an Account” 
• Step 3: Choose the email you wish to register with, after which you will prompted to verify it by entering the code sent to that email address
• Step 4: You will be prompted to enter your phone number 
• Step 5: A One Time Password (OTP) will be sent to your mobile number. Enter the code to proceed
• Step 6: Create and confirm a 4-digit PIN code you which will be what you will be using to access your account
• Step 7: Fill in Your personal data information; your full names as they appear on the ID, date of birth, and gender
• Step 8: You will be prompted to enter your National ID Number. Upon completion, your temporary account is created pending verification. 
• Step 9: Verify you account by sharing a photo of your ID (both front and back)
• Step 10: Next, verify that you are the same person whose documents have been uploaded by taking a live selfie
• Step 11: The selfie acts in place of the physical passport photo you would traditionally take to a bank branch. The selfie is reviewed to verify that the face of the person who opened the account matches the details on the provided ID number
• Step 12: Once your verification is complete, all the Umba features are unlocked and you can now fund your Umba bank account. This is done through M-pesa where you input the amount you wish to send and an M-pesa prompt is sent to the line you used to register for you to complete the payment by inputting your M-Pesa pinPIN. 
• After confirming payment, your balance reflects on the Umba current account, known as a “Wallet” 

You AanCan Also Top Up Your Umba Bank Current Account Visa Mp-Pesa Using This Process:

• Go to Lipa Na Mpesa
• Select Paybill
• Enter 264130 as Business Number
• Enter your phone number as Account Number
• Enter Amount and Confirm Payment

How to Open the Standard Umba Savings Account

To deposit money into the standard Umba savings account, follow the following steps: 

1. Click on “Savings”
2. Click on “Savings Stash”
3. You will be prompted to indicate what you are saving for, this will be the name of your savings account, for example, if you are saving for a laptop, you can name it “Laptop”
4. You can then proceed to make a deposit by clicking “Save More” and transfer the amount you wish to save from your “Wallet” (the Umba current Account)

The Umba Standard Savings Account pays 5% interest per annum. This interest is paid out monthly meaning money saved in this account will earn compound interest each month.

There is no minimum balance, no maintenance charges, and there are no limitations on withdrawals for this account. 

How to Deposit Money at the an Umba Fixed Deposit Account 

To keep your money in the Umba Fixed Deposit Account, use the following steps:

• Step 1: Click on “Locked Savings” 
• Step 2: You will be prompted to fill in your savings goal, for example, to buy a piece of land, car down payment etc. In this step, you will also fill in the amount you wish to save. 
• Step 4: You will be shown how much the money you wish to save will yield over various lock periods
• Step 5: Choose the lock period that best aligns with your savings goal from 1 month, three months, six months, nine months and 12 months. 
• Step 6: Click on “Create Savings Account”  a prompt will show you the maturity date for your savings before automatically deducting the amount you had funded 

WRAPPING UP

The Umba Fixed Deposit Account is a unique offering that has one of the highest guaranteed interest rates in Kenya. At 16% per annum, the Umba Fixed Deposit Account sits well above Kenya’s annual inflation rate, which as of September stood at 6.8%. 

This makes it an ideal consideration when looking for a place to protect your savings from the vagaries of inflation. It also presents a convenient choice for people who are in need of passive income, such as retirees, to enjoy a comfortable lifestyle without having to work hard for it or take on investment risks. 

With the rising cost of living, the passive income opportunity goes beyond retirees as more Kenyans lookout to expand their income sources to manage the growing household budgets. 

Further, the Umba Savings Account is a digital product that makes it easy to open and track your savings, which increases the motivation to continue saving and develop a savings habit. 

Would you like to open the Umba Savings Account? Start HERE.