ABSTRACT:

This study sought to examine the impact of interest rate on savings on the Nigeria’s economy (1981-2013). It also investigated the joint influence of savings and income on the total savings in the economy. Ex post facto method was adopted In order to test the hypothesis, the researcher adopted VAR test. The result showed that 1% increase in a period lag of interest rate on deposit, on the average will cause 0.1% increase in savings. This implies that any attempt made to increase the propensity to save will always cause increase in the savings level ceteris paribus. More so, 1% increase in a year period lag of the income will cause 0.04% increase in savings. This indicated that as income generated by the country increase, all things being equal, the desire to save will be on the increase. The result also showed that level of significance [0.05] was less than its P-value for LINT. Thus, interest rate does not significantly impact on the savings in Nigeria within the period under study (1981-2013). However, considering the factor like income (GDP), it was found that both variables significantly impact on the savings in Nigeria within the period under study. The result indicated that combining interest rate and income, savings can be significantly influenced. This is also supported by the positive relationship between the dependent variable; Savings (LASV) and the explanatory variables (interest rate on deposit [LINT and LGDP]. In the light of the findings, it was recommended that the CBN should adopt interest rate policy that will always boost the savings culture of the real sector. This can be achieved by increasing the interest paid to deposit made by individuals, local and foreign investors. More so, income generation by the sectors of the economy can be enhanced by providing enabling environment for business to thrive. This will certainly cause increase in the income (GDP) thereby contributing to the increase in the total savings of the country