Why TymeBank is keeping its interest rate unchanged

Digital bank, TymeBank, says it will keep its interest rate unchanged at 10%, regardless of the announcement made by the Reserve Bank later on Thursday.

“Worth noting is that TymeBank has taken this decision before the Reserve Bank makes its announcement later today and likely cuts the benchmark interest rate by a considerable amount.

“TymeBank’s bold decision is especially reassuring news for South Africans already taking advantage of their GoalSave savings tool, a free added service that allows TymeBank’s customers to earn up to 10% interest per annum by simply putting their savings in a GoalSave pocket,” it said in a statement on Thursday (19 March).

Analysts expect the SARB to cut rates by up to 50bps in an effort to assist the economy in the wake of the Covid-19 outbreak.

Of 21 economists in a Bloomberg survey, 11 predict a 50 basis-point reduction, while the balance expect the rate to be lowered by 25 basis points.

Forward-rate agreements show traders have switched from pricing in a less than 50% chance of a 25 basis-point cut three weeks ago to betting on a 100% chance that the central bank will cut by 50 basis points.

With an economy that slumped into a recession even before the coronavirus intensified, South Africa’s inflation-targeting central bank is facing calls to ease policy to support economic growth.

The Reserve Bank has repeatedly said that monetary policy alone cannot help South Africa’s economy and has a track record of being cautious when moving down – the last time it cut at consecutive meetings was in 2010, Bloomberg reported.

“Although it is uncommon in the banking sector for a bank to not follow the Reserve Bank and lower its interest rate on deposits, we have built our business on a few core values. One of which, is that of offering our customers greater control over their money.

“In such uncertain times, when so little is in anyone’s control, we wanted to give our customers as much peace of mind as is possible – knowing that they will still be consistently earning the best interest rates on their savings for the next three months at the very least,” said TymeBank’s chief strategy officer, Greg Illgner by way of a reason behind the bank’s decision.

Having only officially launched in early 2019, the bank has seen strong growth having picked up 1.5 million customers nationally.

“Traditional banking wisdom said that you either had to have a vast amount of money, or leave your money in a savings account for a long period, in order to really reap the benefits of interest. We don’t think this serves the vast amount of people trying to save in our country.

“From the first rand our customers save, they earn 6%. After 30 days, this increases to 7%, and after 90 days, it increases once again, to 9%. The money is always available immediately, with no penalties, however, if customers are willing to wait ten days (or plan ahead), they’ll earn a bonus on top of their interest that takes the maximum interest they’ll earn up to 10%. No other savings account comes close,” Illgner said.

He said that internal market research showed that many South Africans have a weary relationship with interest rates and banks.

“They distrust them because they’ve experienced how they work against them when it comes to credit card debt and loan repayments. To reassure our customers and incentivise them to save more, we needed to make their savings as visual as possible. For this reason, our customers can watch their savings accruing daily. Many log on every day just to watch their money grow,” Illgner said.

With no branches and its core banking system hosted securely in the cloud, TymeBank noted that it has far fewer overheads and employees to consider than a traditional bank. Instead, the bank has 800 kiosks located in Pick n Pay and Boxer stores across the country, along with a sizeable call centre.

Read: South Africa’s TymeBank is signing up 4,000 new customers each day

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Why TymeBank is keeping its interest rate unchanged