How To Invest In Nigerian Banks – Learn The 4 Best Investment Opportunities In Banking Sector -Fixed Deposits, Commercial Papers, Mutual Funds and Stock Trading
A lot of people thought that banks are financial institutions designed to only accept a deposit/mobilise funds for savings purpose and make it available to their customers upon request, they don’t that know beyond the normal savings and withdrawal services, there are investment opportunities offering better return compared to the paltry 2-3% interest income.
In this dynamic environment, where the price of essential amenities is constantly surging higher every day, you can’t afford to be mediocre or allow the value of your savings gets wiped out by inflation which, as of this writing, sits at 13-14%. Rather than allow your bank take your money, pay your 2-3% interest and advance your cash to corporate customers at a higher interest of up to 22%, there are alternative investment options you can try now.
This article explores practical ways you can invest in Nigerian banks at a moderate risk and earn returns on your investment.
How to invest in Nigerian banks – 4 Opportunities to Explore:
- Fixed deposits
- Commercial papers
- Mutual Funds
Investment in Fixed Deposit
If you are a customer who operates a savings or current account with a bank, you can take advantage of the returns on fixed deposit by transferring your idle cash balances; funds you may not need in 3-6 months. All you need to do, send a letter to your bank requesting for a certain sum of money to be transferred to a fixed deposit, duration and effective date. The minimum tenor of fixed deposit investment is usually 30 days but the maximum depends on the bank. Interest on your principal is calculated on a simple interest basis. Also, the total interest-earning accumulated over the investment period is subject to a withholding tax of 10%.
Commercial papers are unsecured promissory note issued by a company to holders – such short-term debts are used to finance other short-term liabilities. You need to approach your bank to inquire about this investment and the terms of the arrangement. Usually, commercial paper is issued by banks with stable earnings or companies that have a good credit history.
This is one of the best short-term investment available to bank customers in Nigeria. Most banks operate a mutual fund, a financial window that mobilises funds from interested investors and pays a guaranteed interest on a monthly, quarterly or annual banks. The interest payable to account holders are determined by NIBOR, Nigerian Inter-Bank Offer Rate – the rate bank lends to one another.
If you are looking for a higher return opportunity compared to other windows mentioned above, the stock exchange market is the floor to play in. While investing in banking stocks comes with its own risk, the reward can be huge when you do a thorough analysis your bank’s future potential compared to its present stock price.
Aside from price appreciation, you can also earn a dividend on your equity shares.
See my detailed guide on how to analyse and pick banking stocks.
Before you invest your fund in Nigerian banks, please consult your financial adviser for more details.