The interim government has adjusted the interest rates on savings certificates to be market-based, following the recommendations of the International Monetary Fund (IMF).
This new rate structure has been in effect since January, resulting in a slight increase in interest rates across all types of savings certificates.
However, despite the higher rates, investment in savings certificates has not increased. Instead, encashment trends have been more prevalent, with net investment in January recorded as a negative Tk4,768 crore.
This indicates that more funds were withdrawn from previously purchased savings certificates than new ones were bought, according to the latest report from Bangladesh Bank.
Earlier in the fiscal year 2024–25, the first three months (July–September) saw an upward trend in savings certificate investment.
However, from October onwards, this trend declined and continued through January, when encashment exceeded new purchases.
In the first seven months of the fiscal year (July–December), net investment in savings certificates remained negative, meaning the government did not secure new loans through this scheme but instead repaid previously taken loans.
Although net investment exceeded Tk8,000 crore in the first quarter of the fiscal year, the subsequent months saw a sharp decline.
Experts suggest that a mere increase in interest rates does not necessarily boost investment in savings certificates.
With persistent high inflation, many people have seen their expenses outpace their income, limiting their ability to save or invest. Instead, many are liquidating their previous investments in savings certificates to meet financial needs.
Speaking on the matter, former chief economist of World Bank's Dhaka office, Zahid Hussain, noted, "The current economic situation is not favourable for investment, wages, or the labour market. Except for remittances and export earnings, no sector of the domestic economy is experiencing income growth. Meanwhile, inflation remains consistently high. This means that while people’s earnings have stagnated, their expenses have increased. In such circumstances, most individuals lack the capacity to make new savings, which explains why savings certificate investments have not risen despite the increase in interest rates."
Regarding the government's rationale for increasing savings certificate interest rates, he explained, "The government's reforms in this sector were primarily aimed at making interest rates market-based, not necessarily increasing them. The IMF has also recommended reducing reliance on savings certificates for government borrowing."
It has been revealed that the shift to market-based interest rates was primarily driven by IMF recommendations, linking savings certificate interest rates to the rates of government treasury bills.
The six-month average treasury bill rate now determines savings certificate interest rates.
Consequently, when treasury bill rates rise, so will savings certificate interest rates, and vice versa.
The IMF’s $4.7 billion loan agreement with Bangladesh includes recommendations to reduce government borrowing from savings certificates.
The government is restricted to borrowing no more than one-fourth of its annual budget deficit from savings certificates, with an additional requirement to align interest rates with market trends.
A senior official from the Department of National Savings, speaking on condition of anonymity, stated, "Investment in savings certificates is always higher in the first quarter of the fiscal year, mainly because taxpayers seek higher tax rebates on their income tax returns by investing in this period. However, investment tends to decline in the subsequent months. This is why, over the past seven months, encashment has surpassed new investments."
According to the latest report from the National Savings Directorate, net investment in savings certificates in the first seven months of the 2024–25 fiscal year stood at a negative Tk7,013 crore.
This suggests that rather than raising new funds, the government has been repaying debts incurred through previous sales of savings certificates.
In economic terms, the net sale of savings certificates is considered a government "loan" or "debt".
By definition, net sales refer to the remaining amount after repaying interest and principal on previously sold savings certificates.
The funds deposited in the government treasury are then used for various development projects.
The interim government’s target for net borrowing through savings certificates in the 2024–25 fiscal year has been set at Tk15,400 crore.
In contrast, the target for the previous fiscal year was Tk18,000 crore, but net investment ultimately stood at a negative Tk21,124 crore, meaning no new funds were raised through savings certificates.
This shortfall influenced the decision to lower borrowing targets for the current fiscal year.
Under the new structure, the projected interest rate for three-year quarterly profit-based savings certificates is 12.30% for investments up to Tk7.5 lakh, while investments exceeding this threshold will receive an interest rate of 12.25%.
For five-year pensioner savings certificates, the interest rate will be 12.55% for investments up to Tk7.5 lakh and 12.37% for higher amounts.
Meanwhile, five-year family savings certificates will offer an interest rate of 12.50% for investments up to Tk7.5 lakh and 12.37% for higher investments.
Additionally, three-year postal fixed deposits will offer 12.30% interest for investments up to Tk7.5 lakh and 12.25% for larger sums.
Currently, banks generally offer fixed deposit rates ranging between 9% and 11%, though some liquidity-strapped banks are offering rates as high as 13%.
Meanwhile, savings certificates currently provide returns between 11% and 11.50%.
Previously, savings certificate interest rates were significantly higher than those of bank deposits and treasury bills.
However, under the new system, these rates have been brought much closer to market levels.