The Kenyan shilling has significantly weakened over the past decade compared to the US dollar – the most widely used currency in international transactions.
One of the main causes of the weakening shilling is the high inflation rates in the country. Keeping your cash in dollar accounts helps safeguard your money from the volatility of the Kenyan shilling.
One of the challenges with dollar accounts in Kenya is that they have relatively low rates for savings accounts – and mostly encourage current accounts.
Most local banks offer 0.05-0.1% interest rates which is very low compared to what banks and saccos offer locally.
But having a dollar account can offer still offer several benefits, including:
- Diversification: Holding a dollar account allows you to diversify your currency exposure, reducing your reliance on the local currency (Kenyan shilling). This can help protect your savings from potential currency fluctuations and economic uncertainties.
- International Transactions: If you frequently engage in international trade or make transactions in US dollars, having a dollar account provides a convenient and cost-effective way to send and receive payments in that currency. It eliminates the need for currency conversions and reduces associated fees.
- Investment Opportunities: With a dollar account, you can access a broader range of investment opportunities denominated in US dollars. This includes various international financial markets, stocks, bonds, mutual funds, and other investment instruments. It allows you to diversify your investment portfolio and potentially benefit from global economic growth.
- Foreign Currency Savings: Holding a dollar account enables you to save in a stable and widely accepted currency. The US dollar is often considered a safe-haven currency, especially during times of global economic uncertainty. It can provide a hedge against inflation and preserve the value of your savings over time.
- Travel and Visa Requirements: If you frequently travel to countries where the US dollar is widely accepted, having a dollar account can simplify your travel expenses. It allows you to withdraw cash in US dollars from ATMs abroad, potentially saving you from unfavorable currency exchange rates.
- Remittances: If you receive remittances from friends or family members living abroad in US dollars, having a dollar account makes it easier to receive and manage those funds. You can avoid currency conversion fees and potential losses associated with exchanging currencies.
- International Business: For businesses engaged in international trade, having a dollar account provides a more efficient way to conduct transactions with overseas partners, suppliers, and customers. It simplifies cross-border payments and reduces foreign exchange risks.
While a dollar account can provide certain advantages for investing, it’s crucial to carefully assess your investment goals, risk tolerance, and the specific investment opportunities available.
Investing always carries inherent risks, and it’s advisable to consult with a financial advisor or professional who can provide personalized guidance based on your circumstances.