Factors to consider when opening a bank account in Kenya
Security of funds
Security of your money is the most crucial factor to consider when selecting a bank. The security of your money means that there is minimal probability that the bank you are using is going to collapse. This can be guaranteed by the bank’s balance sheet stability. It may be difficult to analyze each and every banks balance sheet but there are several outward indicators of a stable balance sheet. The following are some of the indicators:
The size of the bank
The management structure of the bank
The market share of the bank
Though large banks may seem to be the better bet, there are many small banks that have small but extremely resilient balance sheets. The only advantage for large banks is that they are too big to fail because the impact of the failure may be devastating to the economy and the government may have to bail them out. Smaller banks may fall and have little impact on the economy hence the regulator may ignore them.
Fees, charges and penalties
Bank fees, charges and penalties vary from bank to bank. You should be able to find an account in a bank that charge no fee or minimal fee for basic account transactions. Most of this information can be found in brochures at banking halls or in banks’ websites.
For example, ATM charges vary from Kenya shillings 30 to 70 per withdrawal and cost for transferring money through real time gross settlement (RTGS) in Kenya vary between Kenya shillings 330 to 660 per transaction.
Penalties are also relevant when determining where to open a bank account. For example, when one issues a cheque and has no money in the account, penalties range from Kenya shillings 300 to 500 depending on the bank.
Interest rates on loans in Kenyan banks are calculated by adding a bank’s overhead costs to the Kenya banks’ reference rate (KBRR) provided by the Central Bank of Kenya. Though the KBRR may be fixed for all banks, overhead costs for banks vary hence you will find some banks charge higher interest rates than others. You should inquire the exact interest rate charged by your bank before taking a loan. With a little window shopping, you can find a better deal in another bank which will save you money. Interest rates on loans vary from 15% to 22% depending on the bank and risk profile of client.
On the other hand, interests paid by banks for deposits and savings also vary. Generally, smaller banks offer higher interest rates on deposits and savings compared to larger banks due to the risk associated with balance sheet size. For any depositor, shopping for deposit interest rates may be the best way to go as you may earn a greater return for a given risk level.
Availability of a branch is a crucial factor to consider when selecting a banking institution. This will enable you to transact easily and access banking services immediately. This may be more crucial for clients who need complex banking products like Telegraphic transfers and Letters of credit but for clients with normal transactions, branch availability may be trivial factor as mobile and online transactions may be sufficient to cover any financial obligations.
Large banks generally have a larger network of branches compared to smaller banks. One may think that it is better to bank at a larger bank because of its sufficient branch network but this comes at a cost. Since smaller banks have fewer clients, they tend to be more efficient than larger banks, for example, it may take one day to respond to a given query from a client in a small bank whereas it may take several days to respond to the same query from a larger bank.
Online and mobile banking features
Online and mobile banking features enable you save costs of visiting your branch. This cost not only involves money but also time. A common misconception is that mobile and online transactions are more costly than actual branch premise transactions like over the counter and ATM use. If you consider the time and money spent to reach the point of withdrawing the cash, the online or mobile platform would seem more viable. With Central Bank of Kenya tightening prudential guidelines on cash withdrawal, banks will make it more expensive to withdraw over the counter hence online and mobile transactions would be the way to go.
Minimum balance requirements
Different banks have different minimal balance requirements. I would advise one to choose a bank with no minimal account balance or if there is any balance, it must be earning an interest for you. Allowing your money to lie idle in an account is a cost to you because you can invest the money and earn a return.
Once in a while things go wrong during a transaction. For example, you may withdraw cash from an ATM and fail to get cash but your account gets debited with the given amount. The solving of such issues and other day to day issues will largely depend on the customer service level of a given bank. You need to be treated well as a customer and any bank that doesn’t hold this seriously doesn’t deserve your time.
Several publishers publish information on banking services like think business and you can use this to determine what kind of service you are looking for. You can also find rating agencies online who can help you decide which bank may fit your banking needs.