By Babajide Komolafe

I would like to know which of the banks could possibly guarantee a fixed monthly return of 20%, including a domiciliary account. Look at the bank’s options e.g. IBTC, FIRSTBANK, ECOBANK, UBA, etc
I was quite surprised by this message and request from a reader who by his looks is an elderly person.

Presently the average interest rate for a 12 months fixed deposit in banks is 10.32%. Average return on money market mutual funds is 15.5%. The return on one year treasury bill rate is about 16.6%. And the interest rate on 270-Days Commercial Paper, CPs, ranges from 21% to 23%.

But this reader is seeking 20% monthly return on a bank deposit, which amounts to about an annual return of 240%. This is not just excessive, it is outrageous because it is far from reality.
His request reflects a mindset that makes people fall victim to fraudulent investment schemes. It is the mindset that puts returns (income) from an investment above safety of the money invested.
An important principle of successful investing which is critical to building wealth is that safety of money invested is more than the returns offered on the investment. This principle is the reason why money market mutual funds attract more patronage than other types of mutual funds.

For example, as at February this year, the Net Value of all mutual funds was N8.31 trillion, out of which money market mutual funds accounted for N5.32 trillion. This means money market mutual funds accounted for 64 per cent of total value of all mutual funds. Meanwhile some of the mutual funds record higher returns than money market mutual funds. Presently, returns on money market mutual funds is around 15.5%. But returns on equity-based mutual funds and balanced funds are over 30%.

Some years back, when I asked the Chief Executive Officer of an investment bank, why money market mutual funds attract more patronage than other mutual funds, she told me that the investors are more interested in the safety of their money than the amount of returns.
Wise investors are more concerned about having their money back at the expiration of the investment. And because they also know that the higher the return, the higher the risk attached to that investment and hence loss of their money, they do not seek or are easily attracted to investments that offer high returns, especially one they know is far from the general level of interest rate in the economy.