The Exchange: Ditch the savings accounts - Low returns, negative yields spell worry, banker warns
Published:Tuesday | September 24, 2019 | 12:07 AM
A senior player in the financial sector has said that Jamaicans could be better off ditching traditional savings accounts in the current economic climate.
“Right now, when you look on the earnings from a savings account and compare what our inflation rates are, then you see exactly what the problem is. Savers right now are making negative returns,” Devon Barrett told The Exchange business forum last week.
For the last five years, the average rate of inflation was just under four per cent and the average interest rate on savings account over the same period has been less than two per cent.
“Even on the best savings product, the rate was not more than three per cent. Right now, the six-month treasury bill rate in Jamaica is 1.75 per cent. So, if you just use the inflation for the past 12 months, which is 4.1 per cent, and you compare it to the 1.75 per cent, then you are earning negative returns,” reasoned Barrett, who is the group chief investment officer and head of the Strategic Investments Unit at Victoria Mutual Building Society.
But Robin Levy, group CEO of the Jamaica Cooperative Credit Union League, insisted that there was still value in maintaining savings accounts, especially for those persons seeking to accumulate funds.
“Persons have to get into the habit of putting away some of what they earn so that they can start investing their money and take more risks. To start investing in real estate, for example, you need a fairly large amount of money to get started,” Levy said as he weighed in on the topic at the JNN-Financial Gleaner business forum.
He also claimed that credit unions would normally pay higher than the average interest rate in the market on savings accounts.
Seventy-four per cent of Jamaicans saved or set aside money between 2016 and 2017, although only a third have done so via a regulated financial institution, according to National Financial Inclusion Strategy 2016-2020.
When asked about the feasibility of quickly coming up with J$28,000 for an emergency, 37 per cent of Jamaicans report that it would be ‘not at all possible’ or ‘not very possible’.