Udemezue John
Introduction.
Inflation is one of those things that feels like it’s always lurking in the background, but in a high-inflation economy, it’s hard to ignore.
When prices keep rising, the value of your money doesn’t stretch as far as it used to. This is a major problem for many Nigerians right now, as inflation rates have been consistently high.
But just because inflation is high doesn’t mean your money has to sit idle and lose value. There are ways to make sure your savings are still working for you, even during rising prices.
In this post, I’ll take a look at some of the best ways to save money in a high-inflation economy and how you can make sure your Naira doesn’t lose its worth.
Why Saving Money in a High-Inflation Economy is So Hard
If you’ve been trying to save money lately, you might have noticed that it feels like you’re getting nowhere.
This is because inflation is outpacing your savings. When inflation rises, the cost of living increases, and your money loses purchasing power.
For example, let’s say you have N100,000 in your bank account. If inflation is at 24%, your N100,000 will only buy you what N80,000 could have bought a year ago.
The scary part is that this trend doesn’t seem to be going away anytime soon. Inflation in Nigeria has been above 10% for several years, and it doesn’t look like it will dip significantly shortly. That’s why it’s essential to figure out ways to protect your savings from inflation.
Where to Save Your Naira So It Grows, Not Shrinks
So, how do you save money in an economy where inflation is eating away at its value? The key is to find places where your savings can grow at a rate higher than inflation. Here are a few options you can consider:
1. High-Interest Savings Accounts
Banks often offer savings accounts that pay interest, but the interest rates are usually pretty low—especially in times of high inflation.
However, it’s still worth looking around for banks that offer better-than-average rates. Some banks in Nigeria offer high-interest savings accounts where you can earn as much as 10% or 12% annually, though this is still below inflation.
Even though it may not beat inflation entirely, putting your money in a high-interest savings account can help it grow a bit while also keeping it safe.
For example, if you put N100,000 in an account that earns 10% interest annually, you’ll earn an extra N10,000 in a year. While that’s not a huge return, it’s better than nothing.
2. Invest in Treasury Bills (T-Bills)
Treasury bills are short-term government securities that pay interest over a set period. The government usually offers T-bills at rates that are higher than what most savings accounts can provide, and they are considered relatively safe because they’re backed by the government.
In 2023, the yield on Nigerian T-bills has been attractive, with rates sometimes reaching 15% to 18% annually, depending on the maturity period.
This rate can help your savings grow faster than the inflation rate, and they are much less risky compared to other types of investments.
3. Stocks and Equities
If you’re looking to grow your money faster and are willing to take on a bit more risk, you might want to consider investing in the stock market.
Historically, stocks have outperformed inflation in many countries, and Nigeria’s stock market has been no exception.
While investing in stocks can be volatile, choosing the right companies with strong growth potential can lead to significant returns over time.
The Nigerian Stock Exchange (NGX) has seen significant growth in recent years, and many Nigerian companies are increasing their profits despite inflation.
You can also diversify your portfolio by investing in mutual funds, which pool money from several investors and invest in a variety of stocks, bonds, or other assets. By doing this, you reduce your risk while still having the potential for solid returns.
4. Real Estate
Real estate can be a good long-term investment if you’re looking to preserve and grow your wealth. Over time, property values tend to increase, especially in rapidly growing cities like Lagos, Abuja, and Port Harcourt.
Even though buying property might not be accessible for everyone, there are other ways to get into real estate, such as real estate investment trusts (REITs) or co-investing with others.
Renting out property can also provide a steady income stream that outpaces inflation. As inflation increases, rental prices tend to go up as well, meaning your income from property may increase too.
Just be sure to do your research before making any big real estate investments, as location and timing matter.
5. Digital Assets (Cryptocurrency)
In recent years, cryptocurrencies like Bitcoin and Ethereum have become popular as an alternative to traditional investments.
While cryptocurrencies are very volatile and come with risks, they can provide returns that are significantly higher than inflation in the long run.
Many people are turning to digital currencies to hedge against inflation because they aren’t tied to any government or central bank.
That said, investing in cryptocurrencies requires careful research. It’s essential to understand the risks involved, and it’s not advisable to put all your money into this volatile asset class. But if done right, it could be a useful tool for protecting your savings.
6. Peer-to-Peer Lending
Peer-to-peer lending (P2P) platforms allow you to lend your money to individuals or businesses in exchange for interest. These platforms often offer higher returns than traditional savings accounts or T-bills, sometimes as much as 20% to 30% annually.
However, there’s a higher risk involved, as there’s no government protection if the borrower defaults. But if you choose trustworthy platforms and diversify your loans, P2P lending could be a good way to earn interest and protect your money from inflation.
7. Diversifying Your Savings into Foreign Currencies or Assets.
In Nigeria, it is no secret that the naira’s value can fluctuate. When a local currency is rapidly losing value, foreign currency investments can help you hedge against inflation because currencies like the US dollar, euro, and British pound are more stable than the naira, and they tend to appreciate relative to it over time.
By converting part of your savings into these currencies, you gain a shield against naira devaluation and inflation.
8. Dollar Savings Accounts.
Digital savings platforms such as Ladda also offer dollar savings accounts, allowing you to save directly in dollars. It will help preserve the value of your money while still earning interest in dollars.
If you have most of your expenses, obligations and future plans in dollars, for example, professional examinations, “japa” plans, or goods and services to be paid for in dollars, then you must seek dollar-saving opportunities.
FAQs
1. Is it safe to invest in Nigeria during a high inflation period?
While there are risks associated with investing in any economy, Nigeria has a growing market that can still provide good returns, even in times of high inflation.
As long as you do your research and choose stable investments, like government bonds or real estate, you can still see positive returns.
2. Can I beat inflation with a regular savings account?
It’s tough to beat inflation with a traditional savings account, especially with interest rates so low. High-interest savings accounts or other investment options will likely provide better returns in an inflationary environment.
3. How can I start investing if I don’t have a lot of money?
You don’t need a large amount of money to start investing. You can start small by opening a high-interest savings account, investing in T-bills, or using platforms that allow for fractional investing in stocks or real estate. The key is to get started and grow your money over time.
4. What’s the safest investment during high inflation?
Treasury bills and high-interest savings accounts are considered the safest, especially if you’re risk-averse. Real estate and stocks can also offer protection against inflation, but they come with more risk.
Conclusion.
High inflation doesn’t have to be the enemy of your savings. With the right strategies, you can ensure that your money keeps working for you, even when prices are rising.
From high-interest savings accounts to real estate investments, there are many ways to protect and grow your wealth.
The question now is: how will you adjust your savings strategy to make sure your money doesn’t lose value in today’s high-inflation economy?
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