OLD FASHION INVESTMENT PRODUCT MIGHT JUST PROVIDE A HEFTY RETURN ON INVESTMENT FOR ZAMBIANS

The graph depicts the industry fixed deposit rate analysis coupled with the treasury bill rate offered by the central bank.

A fixed deposit has sustained its mark as a great resource of investment return for both individuals and corporations with negotiable interest rates for higher investments. Conservative investors can generate a decent return on investment when they seize this opportunity, low principal investment required as compared to investment in treasury bills. However commercial banks deter premature withdrawals of the fixed deposit amount through penalties.

Fixed deposits are considered an old fashion method of saving in comparison to the more sophisticated investment products, however many are attracted since they provide assured returns with minimal risks. The fixed deposit rate is affected by a number of factors as highlighted below:
1. Policies of the Central Bank [Bank of Zambia]
2. Recession [Unemployment]
3. Inflation [Consumer Goods]

BancABC has caught the sight of many, emerging with 34% per annum an interest rate higher than the risk free rate offered by the central bank on treasury bills. How can the local people take advantage of such an opportunity to make their money work for them, let's have a look at the below scenario:

Mr Tennis Njovu a family man is planning to acquire a Toyota Allion from Japan in one years' time. He has decided to invest his life time savings of K50,000.00 for one year in suitable investment. An investment of K50,000.00 into BancABC fixed deposit would help Mr Njovu attain his goal, at the end of the one year tenor the amount would have accumulated an interest of K17,000.00 [K50,000.00 X 34%].
Mr Njovu has now got K67,000.00 and will be able to acquire his car and pay all associated costs for the car to be delivered to his house in Lusaka without the stress of paying high interest debt.
Imagine if Mr Njovu won a K600,000.00 jackpot and invested the old fashion way he would earn interest of K204,000.00 per annum [K600,000.00 X 34%] and would be a millionaire in two years. The return on investment for a short term investor is much higher than investing in property at K600,000.00 for monthly rentals of K3,000.00, the annual return on investment would be 6% [K3,000.00 X 12/K600,000.00]. However we should not brush aside the numerous benefits of property investment for long term secure returns and capital appreciation. The assumption is that current economic factors remain constant.

The current inflation rate in Zambia stands at 22.9% for banks and lending institutions this devaluation of the kwacha is alarming as it's reducing the purchasing amount over the amount lent out. To counter measure against losses on the interest over the amount lent, banks begin to offer higher interest rates on fixed deposits.

The information provided in this article should not be considered as advice or a recommendation to investors or potential investors as it does not take into account your particular investment objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information and in particular, you should seek independent financial advice.