14 Hidden Money Truths: Why Your Bank Is Rich and You Aren’t
Think of a bank like a car dealership. You know the salesperson’s goal is profit. Yet, when we walk into a bank—with its marble floors and polished staff—we often drop our guard. We see a safe haven, not a profit-driven business.
This is the first costly mistake.
Banks are among the most profitable institutions in Kenya. This isn’t accidental. The financial system is built on rules that favor the institution over the individual.
This article isn’t about conspiracy; it’s about capitalism. To win, you must understand the game. Here are the 14 truths banks won’t teach you, and how you can use them to build your own wealth.
Truth #1: Cash in a Bank Loses Value (The Inflation Trap)
The Lie: “Money in the bank is safe and grows.”
The Reality: It’s safe from theft but not from inflation.
The Simple Math:
- Inflation Rate: ~5% (Prices rise 5% per year)
- Average Savings Interest: ~4%
- Result: Your money’s purchasing power shrinks by about 1% annually.
A KSh 100,000 deposit becomes ~KSh 104,000 in a year. But what cost KSh 100,000 now costs KSh 105,000. You’ve lost ground.
Your Move: Use bank accounts for transactions, not growth. Move medium-term savings to vehicles that outpace inflation—like Money Market Funds (MMFs) or SACCO shares.
Truth #2: Banks Create Money When They Lend
The Belief: Banks lend out other people’s deposits.
The Reality: They use your deposit to create new money through fractional reserve banking.
When you deposit KSh 100,000, the bank only keeps a small reserve (e.g., 4.25%). It can lend out KSh 95,750. When that loan is spent and re-deposited elsewhere, the cycle repeats. Your initial deposit multiplies into much more credit in the economy. The bank earns interest on all of it, while paying you minimal interest on the original deposit.
Truth #3: Credit & Mobile Loans Want You in Perpetual Debt
The Design: Notice how they highlight the tiny “Minimum Payment”?
The Trap: Making minimum payments on a KSh 50,000 credit balance at 18% interest can keep you in debt for over 8 years, paying nearly double.
Banks call customers who pay in full each month “deadbeats.” Their ideal customer is the “revolver”—always indebted, always paying interest.
Your Move: Use credit only as a payment tool. Always pay the full balance before the due date. Never use high-interest debt for consumables.
Truth #4: The Rich Get Cheaper Loans
The Irony: The less you need money, the cheaper it is to borrow.
Banks use risk-based pricing. A borrower with unstable income and no assets might pay 20%+. A wealthy borrower with collateral and cash flow might secure a loan at 13%.
Result: The system subsidizes the wealthy with cheap capital to buy more assets, widening the wealth gap. The poor pay a premium just to get by.
Truth #5: Debt is a Tool—Its Use Defines It
Bad Debt: Funds liabilities (cars, gadgets, holidays). The item depreciates; you’re left with debt + interest.
Good Debt (Leverage): Funds income-generating assets (rental property, business inventory, farmland). The asset pays off the debt and generates profit.
The wealthy use Other People’s Money (OPM)—bank loans—to buy assets that appreciate and create cash flow. This is the core of building fortunes.
Truth #6: Loans Can Be Smarter Than Selling (The “Buy, Borrow, Die” Principle)
The Scenario: Your Safaricom shares, bought for KSh 1M, are now worth KSh 10M.
- Sell: Trigger a 15% Capital Gains Tax. Pay KSh 1.35M to the government.
- Borrow: Use the shares as collateral for a bank loan. Get liquidity tax-free, keep your appreciating shares, and let dividends help service the loan.
Your Move: Before selling a strong asset, ask: “Can I borrow against this instead?”
Truth #7: The System Rewards Business & Investment Income
The Disparity: Employees are taxed first (PAYE) on every shilling. Businesses and investors are taxed on profit (income minus expenses).
The Lesson: Moving from a pure “employee” mindset to an “owner/investor” mindset opens legal avenues for tax efficiency. A registered side business allows you to deduct legitimate expenses, reducing your taxable income legally.
Truth #8: Mortgages Front-Load Bank Profit
The Shock: In a 20-year mortgage, early payments are almost entirely interest.
On a KSh 10M mortgage at 15%, your first payment of ~KSh 131,000 might see only KSh 6,000 reducing the principal. The bank takes KSh 125,000 as profit. You pay mostly interest for years.
Your Move: Make one extra principal payment per year. This can cut 5-7 years off your loan and save millions in interest.
Truth #9: Fees Are a Silent Wealth Tax
Beyond interest, banks make billions from fees: ledger fees, transfer charges, penalty fees. A KSh 100 monthly fee on a KSh 5,000 balance is a 24% annual charge on your money.
Your Move: Audit your statements. In the digital age, you should not pay monthly ledger fees. Switch to fee-free digital accounts or SACCO FOSA accounts.
Truth #10: The System Incentivizes Your Debt, Not Your Savings
Observe the marketing: Aggressive loan ads (“Instant Salary Advance!”) far outnumber ads for high-yield savings. Banks profit from your borrowing, not your saving. They cultivate a culture of “buy now, pay later” to keep you on the interest-paying side of their ledger.
Truth #11: Your Deposit is Their Investment (The Arbitrage)
Your savings deposit at 4% doesn’t sit idle. Banks pool deposits and invest in Government Treasury Bills yielding, for example, 16%. They keep the ~12% difference risk-free.
Your Move: Be your own bank. Learn to buy Government Securities directly through a Central Bank CDS account. Capture the full yield yourself.
Truth #12: The “Poverty Premium”
The poor pay more, proportionally, for financial services.
- Wealthy: KSh 500 fee on a KSh 1M transfer = 0.05%
- Low-Income: KSh 30 fees on KSh 1,000 mobile transactions = 3%
The system is structurally more expensive for small transactions, and predatory lenders target the cash-strapped with astronomical rates.
Truth #13: Financial Illiteracy is Good for Business
If everyone understood inflation, no one would leave large sums in savings accounts. If everyone understood compound interest, no one would carry credit card debt. An uninformed public is more profitable.
The Empowerment: Personal finance is 80% behavior. You don’t need complex jargon—you need discipline and a willingness to learn the basics.
Truth #14: The Entire System Runs on Confidence
Due to fractional reserve banking, banks do not have enough cash to repay all depositors at once. The system is built on the confidence that not everyone will withdraw at the same time. A loss of confidence triggers a bank run.
Your Move: Diversify where you store wealth. Don’t keep all assets in one bank. Spread across:
- Tier-1 Banks
- Regulated SACCOs
- Government Bonds (direct ownership)
- Physical assets (land, gold)
Your Path Forward: From Customer to Capitalist
The banking system is a machine. You can be its fuel, or you can learn to use its controls.
Your Action Plan:
- Stop “Saving,” Start Assigning: Every shilling should have a job—emergency fund (in an MMF), investments, expenses.
- Eliminate Fee Leakage: Close accounts that charge you to hold your own money.
- Borrow Strategically: Only for assets that generate income greater than the loan cost.
- Seek Direct Yield: Explore direct investment in bonds, MMFs, and SACCOs.
- Commit to Financial Education: It is your greatest shield and weapon.
The bank has a business plan for your money. It’s time you built your own.
