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.
What is your joy of living? For me, I love the spirit of winning. I get great comfort when my favourite football team wins, when I clear my to-do list at work, or when I meet my personal goals.
My last big win was two years ago in January 2021 when I landed a permanent and pensionable job with a state parastatal. It felt particularly triumphant, coming after 18 months of extended internships, and two months to my 25th birthday.
I started working as an intern in June 2019. It was initially to be a 3-month contract but each time I was about to be confirmed, there were budget constraints and I would be requested to extend the internship for another three months.
While some of my former classmates were rising through the ranks, I remained stuck at the level of an intern. Actually, my colleagues started referring to me as a senior intern after the first year, and then as a veteran intern after I clocked 15 months.
I enjoyed my job and had longed to work for this organisation, so I still held on with the hope that I would be absorbed sooner than later.
You can imagine the joy that engulfed me when my boss gave me a letter confirming me as a permanent staffer. When the excitement settled in, I put my focus on my next win. I needed to buy my own piece of land.
Perhaps due to my upbringing, I have a special affinity for land. I loved farming when growing up but my search for a more promising career led me to study computers and seek a life in the city.
However, as soon as I started renting a bedsitter in Roysambu, I started to dream of living in my own place where I could relax in the garden and watch my kids play in the compound. To get there, I first needed to buy a plot of land where I could then build my dream home.
I figured that the easiest route for me was by aggressively saving through the Sacco, hoping to cash out my deposits and sell my shares once I had hit the target to buy my first piece of land. I hoped to achieve this target by the time I turned 27.
I researched the market value for areas I considered suitable for building my dream home, adjusted for inflation and set a target of about Ksh700,000.
I saved a minimum of Ksh20,000 per month and in some months, I would deposit up to Ksh40,000 depending on my monthly spending and my irregular income from my side hustles.
About 20 months later, I had remained committed to the course with over half a million shillings to show. I was regularly in touch with real estate agents and opinion shapers in the areas I was interested in buying.
In mid-August 2022, I was in Juja Farm to visit a family friend when I learnt that his neighbour was selling his piece of land as a distress sale.
Given its location and amenities, the land was valued at at least Ksh680,000. However, the owner was willing selling it for Ksh550,000 to facilitate education for one of his daughters who had been admitted to study in Canada.
The news sounded too good to be true. My head went on a spin as I contemplated the reality of buying my first piece of land in such a prime location.
I called the buyer and indicated my interest for the land, requesting for a few days to confirm availability of the amount.
The next day, I visited my Sacco to confirm my balances and verify procedure for withdrawing the money I had saved. I had Ksh100,000 in shares, and Ksh408,000 in deposits.
However, accessing my money became a new headache for me. The Sacco informed me that I would have to wait for 60 days to access my deposits.
For the shares, I could only access the money after finding a buyer. Even if I exited the Sacco, I would not access the money I had kept in shares until I had found a buyer.
I had wanted to buy my first piece of land in cash without credit, but as my options became narrow, I started contemplating a Sacco loan. There were two options: I could borrow against my savings, but with a limit of 80% of the deposits. This came to about Ksh320,000 - leaving me with a gap of about Ksh230,000.
The alternative was to find guarantors and borrow up to three times my savings. I opted for this option and immediately embarked on the process of looking for guarantors who would sign on a physical form I had received from the Sacco.
I also informed the land seller about my predicament and asked for a week to source for the funds.
It was a busy week at work so after the Monday off, I did not have much time to take the form to my guarantors. However, during the weekend, I was able to get two out of the four signatures required. It was proving a little difficult since one of my uncles who was to sign was away in Mombasa and would be unavailable for a while.
The land seller had called to inform me that there were other buyers interested in the plot.
He was sympathetic to my plight and even offered to initiate the land transfer if I was able to raise Ksh400,000 for his daughter’s fees - and clear the balance during the transfer process. My time was running out and my options were getting thinner by the day.
By Wednesday the next week, while I was still waiting for my uncle, the land seller informed me that he had received an offer of the full amount in cash and he was afraid he would have to let go to meet his pressing financial need.
It was a deeply disappointing turn of events. I felt I had lost the land, even though it was never mine in the first place. I was down but not out, because sometimes, a winner has to take a loss in order to get a bigger win.
It took me weeks to recover from the disappointment of what was an anti-climax episode of “My First Land Purchase”. I never got tired of lamenting to my colleagues at work and in social gatherings with friends.
Kantai, my supervisor at work, overheard my story and approached me with some advice that changed my perspective about saving.
“I admire your savings habit. But I think you should always explore all options and pick a savings strategy that works for your financial needs. It could be one method or a mix of a number of them.”
Kantai introduced me to the concept of a digital savings account as an alternative to the challenges I had with my sacco.
“You get instant access to your money, you do not have to ask me for offs when you need to make a transaction, and you still get to earn interest.”
I researched more about the digital savings account and realised that it offered a number of advantages that were unknown to me.
A digital savings account can be opened, accessed, and operated anywhere and anytime, through the use of digital devices such as a phone or computer.
The comes with the following advantages:
Accessibility: A Digital Savings Account is easy to access. You do not need to visit a branch to open it, access or transact.
Convenience: A Digital savings account offers great convenience in both the opening process and in the transactions. You can check your balance within seconds, send money even when you are out of the country, and get support through email or a phone call to a bank representative.
Accountability: The digital nature of the Digital Savings Account makes it easier to track progress made in your savings journey. You can also track withdrawals to build your own accountability and increase your savings.
Liquidity: Tethered to the accessibility point above, with a digital savings account, you can have instant access to your money and handle emergencies or quick cash needs without resorting to loans.
Both the Sacco and a digital savings account are great ways to hold and grow your savings. However, their functionality may differ based on some characteristics which are discussed below.
Saccos are more geared towards members who are saving for the long term. Hence the accessibility to savings made through purchase of shares and fixed deposits is highly limited. For instance, in my case, I was given 60 days to access my deposits.
Digital Savings Accounts seek to build their customer’s savings habit but are more flexible to savers who need easier access to their savings. Most digital savings accounts allow you unlimited and instant withdrawals.
Saccos do not refund money saved through the purchase of its shares. Members who wish to dispose of their shares have to look for a willing buyer and work out the arrangement on their own.
Given the long term nature of Sacco savings, Saccos will typically have higher interest rates compared to digital savings accounts. Average interest rates for shares held in Saccos will vary around 12-15%, while the interest on fixed deposits varies between 7-11%.
On the other hand, Absa Kenya’s Digital Savings Account offers one of the most competitive interest rates offered by savings accounts in Kenya at 9% per annum.
Saccos calculate the interest rates annually, on a pro-rata basis, without compounding the interest. You can compound the interest by “reinvesting” it i.e. depositing the interest as principal every year.
However, the digital savings accounts, such as the Absa Digital Savings Account, have introduced innovative features that pay interest on a daily basis (every three and the interest earned is compounded every month.
A digital savings account offers a great way to track your savings progress including easily renewing standing orders, tracking deposits from your employer or debtors and withdrawal history.
The choice on whether to go for a digital savings account or save with a Sacco depends on various factors.
If you are saving and at the same time want to enjoy the advantage of digital financial management and easy access to your money whenever you need it, the digital savings account may be ideal for you.
You do not have to queue at the bank’s branch or fill lengthy paperwork, all your savings can be tracked or transferred from the comfort of your phone or computer.
This greatly works for those who are in the diaspora, have a busy schedule at work and anyone who may not get time to carry out physical transactions. It also works great for those who wish to work from home, have remote jobs or have several side hustles and need a structured way of saving for the goals without the hassle of visiting branches.
The digital savings account comes with the advantage of liquidity - meaning if you were to need cash for an emergency or an unplanned purchase, you would still have access to your money.
With the Absa Digital Savings Account for example, you still enjoy a 3.5% interest rate compounded quarterly even if you withdraw more than once a quarter.
So, as many savers are discovering, a digital savings account may be the best place to stash your emergency savings since you can sort out your emergencies from your own cash as opposed to Saccos or MMFs where you may need to wait for your cash to be processed.
If you are saving towards a specific short-term or long-term goal, then a digital savings account could serve you better. The digital savings account facilitates your goal by offering bonus interests in your savings journey and this can go a long way in boosting your motivation. It would also mean that once you have achieved the interest, you get instant access to your savings which you can then use to meet the intended goal.
If your goal for saving is less specific and longer-term, then Sacco savings may work best for you. This is because the Sacco savings are not accessible in the short term given the period of time it takes to access funds - for example, 60 days as in my case.
So, Saving in a Sacco is designed to power your longer-term goals such as home-ownership or big purchases where you have little to no intention of withdrawing before the target is met.
You also have to be open to taking a loan in the event you urgently need some substantial amount of money since withdrawals are restricted with Sacco savings.
If you have easy access to funds from other sources such as a credit card or you have an up to date emergency fund, saving in a Sacco may be a good diversification to where you are keeping your money.
The nature of life is that there will be emergencies, say a medical bill or an unplanned purchase that may require to raise a substantial amount. If you already have other pools of funds, say an emergency fund, then considering a Sacco as a new place to grow your savings may be a good idea.
Given that savings deposited in a Sacco are not easily accessible, many people utilise their savings to access loans. However, this only works for those who are in stable employment and have easy access to guarantors.
The Sacco not only depends on the guarantor but also requires evidence that you are permanently employed or your contract is valid during the period of loan servicing. At the very least, you must show some source of predictable income to be qualified for a loan.
Many Kenyans save in Saccos primarily as a way of accessing credit in the future since Saccos uniquely loan you money dependent on the amounts you have saved.
Another popular reason why Kenyans choose to save in Saccos is to earn dividends. Many Saccos have been offering double digit dividends that have made the purchase of shares attractive. As such, you may choose to buy shares in a Sacco as an end in itself - that is buying more shares to increase dividend returns.
But you must be aware that once you purchase Sacco shares, you cannot withdraw the amount. If you urgently need this money, you may typically be forced to sell those shares to another member - if you find a willing one - at a loss.
If you take this route, you must make sure you have other ways of covering emergencies including having an easy to access savings account, a credit card and so on.
The choices of a Digital Savings Account or a Sacco option are not mutually exclusive. Depending on your financial position, it could be that the option that best works for you is a mix of both options. Here are some reasons to choose both:
It could be that you have a long term goal of taking a loan, but you also need the freedom of liquidity, for example, to finance your emergencies, make unplanned purchases or to take advantage of opportunities like my elusive land deal.
There is nothing wrong in being unsure about what to do with your money. It could be that you know you want something in the long term, but are unsure of the specific goal you are saving for. For example, you could be saving to build a home ten years from now but you still are open to moving abroad if the chance were to arise.
Or, you are at the start of your financial journey and you’d like to own some shares, are open to getting a loan but you are still debating and still do not want to be caught flat footed when unexpected expenses arise.
In this situation, you can use the digital savings account as the true emergency fund, and take up some Sacco shares to earn some dividends, or deposit another portion of your savings in the sacco to build your credit eligibility.
You may want to save with a Sacco and get a loan but get dissuaded by the fact that your job is unstable. Saving in both the Sacco and the Digital Savings Accounts may be ideal because you would have the option of borrowing, if your income status would allow, or withdraw your digital savings account to get by.
Digital Savings Accounts are a relatively new banking innovation that is helping a new generation of savers achieve their financial goals in a manner that matches their lifestyles and lived realities.
Saccos on the other hand have for decades enabled many Kenyans to access credit based on their savings habits and earn dividends by purchasing shares that are only transferrable not withdrawable.
Both Saccos and Digital Savings Accounts have numerous advantages and the choice between them is based on what one wants to achieve with their money. You can build a good savings habit with both but it is easier to access your money with a digital savings account making it one of the most ideal places to keep your emergency savings.
Savings in a Sacco are less accessible since you are ideally supposed to borrow against them. In exchange, you get a relatively higher interest on savings (depending on the Sacco), there’s a compulsory minimum share capital you must purchase (investment) which many may find valuable.
You can choose to put some of your money in a Sacco to expand your access to credit (savings) or to earn dividends (shares), and another portion of your money in a digital savings account to take advantage of liquidity and to enjoy the affordances of digital savings such as automation and easy tracking.
What’s your choice?