THE EFFECT OF INTEREST RATE ON SAVINGS IN NIGERIA

Abstract

This study looked at how interest rates affect savings in Nigeria. Multiple regression analysis is used. The study also included diagnostic tests such as heteroskedasticity, serial correlation, and stability. This study used secondary data from the Nigerian Central Bank’s statistical bulletin from 1981 to 2014. According to the findings of this regression analysis, the coefficient of interest rate was positive, and the level of significance, 0.05, was less than the p-value, indicating that interest rate has a positive but insignificant relationship with savings in Nigeria. The control variables (GDP and government spending) had a positive but insignificant relationship with savings. This simply means that interest rates in Nigeria have no discernible impact on savings. Instead, savings are impacted.

by low income. Because the results show a positive relationship between interest rates and saving, it was recommended that the central bank adopt an interest rate policy that will not only boost savings in Nigeria but also improve the level of investment, which will in the long run increase the income of individuals and thus their level of savings, and thus that of the economy as a whole. Furthermore, the government should spend more on viable projects because they increase investment, income, savings, and, ultimately, economic growth. The government should also create an enabling environment for businesses to thrive, as this will increase income and thus total savings in the country.

The Study’s Context

Savings and interest rates are inextricably linked. They are among the

the economic variables that are of great importance to a large number of people, the government, business firms, entrepreneurs, foreign investors, the financial sector and the household. They are so important that they significantly influence the level of investment and economic growth in a country (Udude, 2015). The interest rate is a significant economic price. This is because, whether viewed from the perspective of cost of capital or opportunity cost of funds, interest rates have fundamental implications for the economy, either by influencing the cost of capital or influencing the availability of credit by increasing savings (Acha and Acha 2011).

The opportunity cost of borrowing money from a lender to finance an investment project is the interest rate. It is the cost of making use of money. Interest rates play a significant role in influencing major macroeconomic variables. The primary role of interest rates is to aid in the mobilization of financial resources and to ensure efficient resource utilization in the pursuit of economic growth and development (CBN 1970). Savings are defined as the portion of after-tax income that is not spent on consumer goods. Savings can also be defined as the portion of income that is not used to purchase household goods and business equipment (McKinnon, 1973).

 

 

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