Have savers lost appetite for savings certificates?

Infographic: TBS

While deposits in the banking system are increasing, savers are withdrawing more from savings tools than depositing despite lower interest rates in banks, shows the central bank data.

The Bangladesh Bank data shows that the withdrawal tendency continued along the FY23.

From the July-March period of the current fiscal year, the savings certificate saw a new deposit of TK62,658 crore and withdrawal of TK66,819 crore. In other words, people have taken out Tk4,160 crore more than what they have invested over the first nine months of the fiscal.

Bankers and economists say the appeal of the saving tools waned due to inflationary pressure, reduced interest rate and a limit to buy savings certificates.

In the same period of FY22, investments on the savings certificates increased by around Tk16,504 crore as people invested Tk81,327 crore against the withdrawal of Tk64,823 crore.

According to industry insiders, the prolonged dollar crisis of the country increased the import price of goods. So, people have to spend more money on daily essentials.

According to BBS data, food inflation rose to 9.09% in March, up from 8.13% in February, while non-food inflation fell marginally to 9.72% from 9.82%. Meanwhile, wage growth reached 7.18% in March from 7.11% in the previous month.

Inflation reached 9.33% in March, the highest in seven months, causing significant discomfort for consumers.

The government targeted to borrow TK35,000 crore from the national savings certificates in FY23. However, in the first nine months of this fiscal year, government borrowing from savings certificates is far less than that target. On the contrary, the government is increasing bank borrowing.   

Ahsan H Mansur, executive director of the Policy Research Institute, believes that lower-income people are forced to withdraw savings to manage everyday life expenses.

"In fact, the government does not want savings certificates to increase because the government has to spend a lot of money on its interest in the annual budget. This increases the pressure on the government," he said.

"We asked the government long ago to reduce savings certificates. Government officials also buy savings certificates after retirement. So, they also do not want it to stop completely," he said adding, "While the drop in savings certificate sales may not give immediate good results, it will give relief to the government in the next few years."

He also pointed out that the government will not face any additional crisis in meeting the budget deficit due to decrease of savings certificate sales.

Deposits in the banking system are increasing as the banks and NBFIs are offering good interest rates against customer deposits, said Ahsan H Mansoor.

"The government can also increase borrowing money from the banking sector if it wants. By taking loans from the bank, the interest cost of the government is much less," he added.