Banks Pay 2.7% on Savings but Charge 60% on Loans — Here’s Why
CBN monetary report, most Deposit Money Banks (DMBs) are offering a maximum of 2.7% interest on savings deposits a figure that feels paltry to many depositors, especially against rising living costs and inflation.
Meanwhile, the cost of borrowing has skyrocketed:
- Business loans, especially in sectors like manufacturing and construction, can attract up to 60% per year an eye-watering rate by any standard.
- Other sectors such as oil & gas are paying around 46%, information & communication 30%, and education loans roughly 23%.
What’s Driving the Huge Spread?
Economists point to a widening interest margin — the difference between what banks earn on loans and what they pay on deposits — as a major feature of Nigeria’s current banking climate. With the CBN’s benchmark Monetary Policy Rate (MPR) at 27%, many expected banks to pass higher rates through to savers. But that hasn’t fully happened.
In practice, banks cite several reasons for keeping savings rates low:
- Cost of funds and risk management banks argue they must manage liquidity carefully and protect against default risks.
- Competition for capital many Nigerian banks prefer to channel funds into higher-return lending opportunities rather than boost savings payouts.
- Internal pricing strategies premium customers often attract lower loan rates, while average consumers shoulder higher costs.
Why This Matters for Nigeria’s Economy
The implications of this imbalance go beyond individual bank accounts:
Consumers feel the pinch: Savers who hoped low-risk bank deposits would protect their wealth are seeing slim returns.
Businesses struggle with high financing costs: Small and medium enterprises (SMEs) may delay expansion or investment when borrowing costs are prohibitively high.
Inflation and economic growth: Expensive credit can dampen consumption and production, making it harder for sectors like manufacturing to thrive.
Where Things Could Head Next
Analysts say the CBN’s insistence on transparency — including requiring banks to publish their lending rates publicly is a step toward helping consumers make informed decisions.
Yet many industry watchers believe more policy action is needed to encourage banks to share the benefits of higher benchmark rates with savers and support more affordable credit for productive sectors.
Bottom Line: In the current Nigerian banking environment, savers are earning the short end of the stick — often seeing less than 3% on deposits — while borrowers face steep costs that can exceed 60% per year. For everyday consumers and business owners alike, understanding this spread is key to making smarter financial decisions.
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