Your Investment Guide for Nigeria’s High Interest Economy

"You can’t control the wind, but you can adjust your sails."

 Nigeria's economic landscape is constantly evolving, influenced by global factors and domestic policies. Despite these fluctuations, it's crucial to maintain a long-term investment perspective.

Monetary policy, the actions taken by a central bank to control the money supply and interest rates, has a profound impact on personal finances and long-term wealth-building. The recent 25 basis point (0.25%) interest rate hike to 27.5% by the Central Bank of Nigeria (CBN) underscores the importance of understanding these changes and adapting your financial strategies accordingly.

When the central bank raises interest rates, it often signals a tightening monetary policy aimed at controlling inflation – currently at 33.9% – and stabilising the currency. While this can make borrowing more expensive, it also presents opportunities for savers and investors to maximise returns, particularly on fixed-income instruments like treasury bills, bonds, and money market funds.

Even if we can’t change the economic storm, we can certainly steer our finances toward calmer seas. High interest rates and inflation aren’t just abstract figures, they shape everyday decisions about saving, spending, and investing. Let’s talk about how to navigate this storm with confidence and come out stronger on the other side.

1. The Weight of High Interest Rates

High interest rates are like a double-edged sword. On one side, higher rates mean that loans—be it personal, mortgage, or business—become more expensive. It’s crucial to prioritise paying down existing debt and avoid unnecessary borrowing during these periods to keep your financial health intact. On the other side, higher rates mean better returns on savings accounts and fixed deposits.

For instance, let’s say you’re repaying a personal loan. With the benchmark lending rate now at 27.5%, your monthly payments might creep up, leaving less breathing room in your budget. But if you’ve been saving or investing in fixed deposit instruments, those higher rates are a chance to grow your money faster without doing much.

What You Can Do:

• Focus on Paying Down Debt: If you’re carrying high-interest debt, now’s the time to tackle it. Start with the most expensive loans to free up cash for other priorities. Check out our article on mastering debt.
• Take Advantage of Higher Savings Rates: Explore savings accounts or fixed deposits offering competitive returns. InvestNaija’s SaveIN lets you automate your savings so you can capitalise on these opportunities without thinking twice.  For investors with more risk-appetite, now is a good time to take advantage of high interest money market investments like commercial papers (CPs) – these are short-term, unsecured debt instruments issued by reputable companies to meet working capital needs. Look out for commercial papers marketed by reputable issuing houses like Chapel Hill Denham.

2. Inflation is Eating Your Wallet

Let’s face it: when inflation hits 33.9%, it’s like a stealthy thief stealing from your wallet. Prices of essentials like food, rent, and transportation skyrocket, and suddenly, the money you worked hard to save feels like it’s slipping through your fingers.

Imagine spending ₦5,000 on groceries today, only to need ₦6,700 for the same items next month. That’s inflation in action. If your money isn’t working for you, growing faster than inflation—you’re losing ground.

What You Can Do:

• Invest in Growth Assets: Don’t let your money sit idle. Inflation-proof investments like real estate, stocks, or high-yield funds (think Nigeria Infrastructure Debt Fund) can help your money grow faster than rising prices.
• Budget with Precision: Stick to a modified version of the 50/30/20 rule – the 75/10/15 rule, a formula for creating wealth at any income level: 75% for living expenses, 10% for an emergency fund, and lastly 15% for long-term investments. This keeps your spending focused while creating room for growth and helps you cultivate financial discipline and habits.
• Hedge Against the Naira’s Decline: Diversify into dollar-denominated investments to protect your wealth from further currency depreciation. The Nigeria Dollar Income Fund by Chapel Hill Denham is a mutual fund that guarantees regular US-dollar-denominated income from investments in high-yielding, good quality, 3 to 5-year US$ bonds.

3. Finding Opportunities in a High-Interest Economy

Here’s the thing: high interest rates don’t just create challenges, they also open doors for investors willing to adapt.

Where to Focus:

• Treasury Bills and Bonds: These are now offering competitive returns, making them an excellent low-risk choice for retail investors.
• Mutual Funds: High-yield mutual funds managed by regulated financial institutions like Chapel Hill Denham are a solid option for beating inflation without taking on too much risk.
• Dollar-Denominated Assets: Think global—foreign stocks, ETFs, mutual funds and even dollar savings accounts can help you hedge against local market volatility.

By exploring these options, you can turn a tough economic climate into a chance to grow your wealth.

4. Balancing Debt, Savings, and Sanity

Navigating high interest rates isn’t just about numbers, it’s about finding balance. Here’s how:

• Tackle High-Interest Debt First: Loans and credit cards with sky-high rates? Pay them off as quickly as possible.
• Build a Safety Net: Set aside three to six months’ worth of expenses in an emergency fund. Use SaveIN to automate this process, so your safety net builds itself while you focus on living your life.
• Plan with Confidence: Use PlanIN to map out your goals and ensure your spending, saving, and investing align with your priorities.

5. Keep the Bigger Picture in Focus

Economic uncertainty can feel overwhelming, but it’s temporary. The real challenge and opportunity is to stay consistent. Keep saving, keep investing, and keep working toward your long-term goals.

Mindset Shifts for Retail Investors:

• See this period as a chance to refine your financial habits.
• Stay disciplined in your budgeting and saving.
• Invest steadily, even in small amounts—your future self will thank you.

Your Financial Partner: InvestNaija

Managing your finances in Nigeria’s high-interest economy isn’t easy, but you don’t have to do it alone. With InvestNaija, you have the tools to take control:

• LearnIN: Gain insights from curated articles, courses, and podcasts to make informed decisions.
• SaveIN: Automate your savings and stay consistent, no matter what the economy throws your way.
• PlanIN: Create a personalised financial roadmap to keep you on track.
• InvestIN: Begin your journey to financial freedom via Chapel Hill Denham’s mutual funds, which cater to different risk appetites and financial goals.
• TradeIN: Capitalise on market movements and trends while building wealth through buying and selling of stocks listed on the Nigerian Exchange (NGX).

To get started you can download the InvestNaija app from the Apple App Store or Google Play Store and take charge of your financial journey.