Savings vs Investment: The KSh 920K Difference You Didn’t Think About

Have you ever wondered why there’s a consensus that Kenyans don’t have a savings culture? People generally know they should save, but in between the growing statutory deductions and the occasional “nitumie 2K urgently”, most people only save what they are left with at the end of the month. 

Recently, there’s been a growing desire among young Kenyans to save, particularly toward paying yourself first. But the foundation of this desire is still murky.

Hear me out: remember a few months back when all you could hear was MMF this and MMF that? Then came the Special Funds that promised double-digit returns? While all of these are very good options, the debate over whether they count as savings or investments has never really been resolved. So, before you throw rotten tomatoes at me, we shall steer clear of the two and focus on the age-old bank savings account.

The average return on a savings account is about 7.5% and could be higher if you take up a savings account with withdrawal limitations. So, for the sake of this argument, let’s put that figure at 8%. Now, let’s look at investing in stocks, an option that has eluded a lot of Kenyans because it's has just been too complicated. Platforms like Hisa have peeled this down to a simple app download, ID verification, and an M-Pesa transaction later, you’re a shareholder.

A quick spot check shows that one can easily make upwards of 30% on their investment at the NSE (Nairobi Securities Exchange), but assuming you diversify your portfolio and we account for volatility, we can comfortably assume an annual return of 15%. 

Now, those who are watu wa mazematics, already know where we are headed with this. But let’s visualise this with actual numbers*. Assuming we have two people, Abdalla and Mary.

Abdalla only trusts the banks and puts in KES 10K every month for the next 10 years in a locked-savings account. At the end of the period, Abdalla will have saved KES 1.2Mn, whose value will have ballooned to KES 1,829,460 thanks to the KES 629,460 gains from the 8% annual interest. 

Mary, on the other hand, was a bit more of a risk taker. She invested the same 10k monthly but in high-performing NSE-listed portfolio companies through the Hisa app, which offered her visibility and easy liquidation if she wanted to. Assuming the stock gods were on her side, and she realised the high-side average of 15% returns on her portfolio throughout the years, she would have put in the same 1.2Mn but this would have grown to KES 2,752,171.