The pros and cons of various saving methods | Moolah (2024)

Knowing which types of saving accounts and how they compare can make it easier for you to choose where to keep your money depending on your goals and needs.

By Moolah Team February 12, 2024 13 mins read

When it comes to savings, there are several ways one can set aside money and keep it safe, either for short-term or long-term needs.

Knowing which types of saving accounts and how they compare can make it easier for you to choose where to keep your money depending on your goals and needs.

Here are the pros and cons of a few saving accounts:

Saccos

Savings and Credit Cooperative societies, or simply Saccos, have been around for over a century. Saccos are among the most popular saving methods, though they are yet to gain traction among younger generations like GenZs. They are member-based organisations that pull people’s resources together, accumulate them and provide loans or invest them in financial instruments like shares, bonds or property.

Pros

1. Saccos pay out dividends on member’s savings. Members receive a portion of returns when a Sacco’s financial performance improves.
2. Members can access affordable credit, normally up to three times their savings. Saccos extend affordable credit at competitive interest rates, which is often lower than traditional banks.
3. Saccos encourage a saving culture because most of them require you to save a minimum amount every month.
4. Saccos offer various types of loans: emergency, school fess, development etc depending on the borrower’s urgency.
5. Saccos provide investment opportunities such as real estate that members can purchase at reduced rates.

Cons

1. 1.When joining a Sacco, you have to join one where you know the members so that you can be each other’s guarantors.
2. 2.Getting a loan requires you to have at least three guarantors (people who assent to your borrowing).
3. 3.The only way to access your savings is by borrowing a loan. The only other way out is by ending your membership by withdrawing your deposits, but the Sacco will charge you a percentage of commission.
4. 4.The Sacco will take your property or any other assets you pledged as collateral if you fail to repay your loan.

Money Market Funds

Money Market Funds (MMFs) are a type of mutual fund that invests in short-term debt securities. Money Market Funds are deposit accounts where individuals usually decide invest their money for the short-term.

Pros

1. MMFs are less risky compared to stocks and bonds because they invest in low-risk vehicles like treasury bills.
2. They offer diversification across a range of securities.
3. MMFs invest in securities that have a fairly-high demand like T-bills, which means they tend to be liquid.
4. MMFs earn higher returns compared to other low risk investments such as banks.

Cons

1. Some MMFs attract high withdrawal fees. For example, the first withdrawal from a Sanlam MMF is free but any subsequent withdrawals attract a charge of KSh500 per withdrawal.
2. MMFs do not keep up with inflation meaning, when interest rates are too low, they will pay less than the rate of inflation.
3. MMFs are relatively safe but they offer lower returns compared to stocks or bonds.

Bank saving account

A saving account is a type of bank account that allows you to deposit money for safekeeping while earning interest on your balance.

Pros

1. They are easy to open – you can apply online within a few minutes.
2. Easily accessible – you can withdraw or deposit money at any time.
3. In some cases, they do not require a minimum opening or operating balance like Cooperative Bank’s Hekima Savings.
4. Savings accounts are one of the safest investment options because a saving bank account does not invest your money, and you still earn a modest return.
5. A savings account is a liquid asset/deals in cash which means you can easily access your money.
6. In some cases like NCBA, and Equity Bank, the more you save, the higher the interest rate.

Cons

1. The easy access to the funds may be too much of a temptation, making saving long-term difficult.
2. For those with a minimum balance requirement, you will be obligated to maintain a certain average in your account.
3. Some saving accounts have withdrawal limits per quota.
4. The interest rates are lower compared to other investment options like MMFs.
5. With low interest rates, inflation could erode the value of your earned interest.

Chamas

A chama is an investment group where members contribute a set amount of money with the aim of saving or investing or both.

Pros

1. Members can pool resources towards a specific investment project
2. Chamas that have a provision for emergency borrowing are quick to help you in times of emergencies. Financial institutions like banks or saccos may take longer to process loans, and these loans may be expensive to repay.
3. Chama loans come at an affordable rate, sometimes interest free.
4. Investment driven chamas engage in diverse range of investments that will ultimately lower risk.
5. Most chamas comprise of members from different backgrounds who share, with the group, invaluable knowledge they have gathered individually in their financial journeys.

Cons

1. Some chamas lack guiding or operating rules or a strategic plan which could lead to their failure.
2. Chamas that are unregistered risk failure because they are not legally bound and do not give members a sense of security.
3. Dishonest leadership in the chama may lead to mistrust from the group.
4. Some members do not take chamas seriously.

Dollar account

A dollar account is simply a bank account that allows an account holder to send and receive money in US dollars. It can be used for saving and transacting in dollars.

Pros

1. Convenience – You can transact in dollars without having to worry about exchange rates.
2. You can have access to international markets and diversify your investments by investing in US stocks in dollars.
3. A dollar account protects you from currency fluctuations either from economic or political events.
4. A dollar account is generally considered safe to avoid
5. It’s easier to use a dollar account when traveling and carrying out international transactions which attract less charges compared to a shilling-based account.

Cons

1. A foreign currency account like a dollar account has lower interest rates compared to regular saving accounts.
2. A sudden rise or fall in the value of the (foreign) currency will affect your total balance.

Pros and consSaving methods