Investment in savings certificates witnessed an upward trend during the first quarter of the ongoing fiscal year, only to taper off from the fourth month onwards, with this decline persisting into the fifth month.
During this period, encashment of savings certificates outpaced fresh purchases, resulting in net investment of just over Tk1,676 crore in the first five months (July–November).
This marks a significant drop from the Tk8,332 crore recorded in the first three months alone, as per the latest data from Bangladesh Bank.
Amid this downturn, the government has announced an increase in interest rates on all types of savings certificates, effective January, following a rise in bank deposit rates.
The Ministry of Finance is increasingly viewing savings certificates as a crucial tool to bridge revenue shortfalls and reduce reliance on bank loans.
To this end, steps are being taken to encourage greater investment in this sector.
Industry insiders anticipate that investments in savings certificates will rise in the coming months, given the ongoing instability in the banking sector and reports of some banks failing to return deposits on time, eroding depositor confidence.
While the government has hiked deposit rates, many investors still consider savings certificates a safer option.
Experts note that a significant portion of investments in savings certificates typically occurs in the first quarter of the fiscal year due to higher tax rebates on income tax returns, leading to a natural decline in October and November.
A senior official from the National Savings Directorate explained that this cyclical trend is common, as investors rush to capitalise on tax benefits early in the year, leading to a subsequent slowdown in later months.
"During this time, encashment tends to exceed new purchases," he added.
Former World Bank chief economist Zahid Hussain attributed the recent decline to broader economic instability, exacerbated by political unrest, prompting many to withdraw deposits for livelihood expenses.
This trend has also been evident among savings certificate investors, with encashments surpassing fresh investments during this period.
Net Investment Trends and Government Borrowing
Under the existing framework, the net sale of savings certificates—computed after disbursing interest and principal on previously issued certificates—constitutes a form of government borrowing.
The revenue generated is channelled into various development projects.
According to the latest report from the National Savings Directorate, net investment in savings certificates during the first five months of FY 2024-25 stood at Tk1,676 crore, compared to Tk8,332 crore in the initial three months.
A monthly breakdown reveals Tk2,187 crore in net investment in July, Tk2,036 crore in August, and a peak of Tk4,109 crore in September.
However, encashment surged in October and November, resulting in negative net investments of Tk3,226 crore and Tk3,430 crore, respectively.
For FY 2024-25, the government has set a borrowing target of Tk15,400 crore from savings certificates, a downward revision from the Tk18,000 crore target in the previous fiscal year.
However, in FY 2023-24, net investment was negative Tk21,124 crore, meaning the government did not borrow a single taka from this sector.
This shortfall has informed the lower borrowing target for the current fiscal year.
Revised Interest Rates and Market Dynamics
Under the new structure, effective January, three-year profit-sharing savings certificates will offer a 12.30% interest rate for investments up to Tk7.5 lakh, with a slightly lower rate of 12.25% for larger investments.
The current rate for this scheme is 11.28%.
Similarly, five-year pensioner savings certificates will provide 12.55% interest for investments up to Tk7.5 lakh, with a rate of 12.37% for higher amounts, compared to the current 11.76%. The five-year family savings certificate scheme will now offer 12.50% for up to Tk7.5 lakh and 12.37% for larger amounts, up from 11.52%.
Additionally, the three-year fixed deposit scheme at post offices will carry a 12.30% rate for investments up to Tk7.5 lakh and 12.25% for higher investments.
Meanwhile, banks are currently offering 9–11% interest on fixed deposits, with some liquidity-strapped banks offering up to 13%, creating a narrowing gap between bank deposits and savings certificate returns.
Previously, savings certificates offered significantly higher returns than bank deposits, treasury bills, and bonds, but this advantage has now diminished.
Regulatory Reforms and Investor Benefits
In an effort to streamline the savings certificate process and reduce investor inconvenience, Bangladesh Bank has issued a directive mandating that investors receive their principal and interest on the maturity date itself, addressing previous delays in encashment.
Furthermore, Bangladeshi mariners, pilots, and cabin crew—previously excluded—will now be allowed to invest in Wage Earners’ Development Bonds, broadening their investment options.
Additionally, savings certificate schemes, including Wage Earners’ Development Bonds, US Dollar Premium Bonds, and US Dollar Investment Bonds, will now allow for automatic reinvestment upon maturity, providing investors with greater flexibility.
With these policy adjustments, the government hopes to revive investor confidence in savings certificates and bolster revenue streams, while navigating ongoing economic challenges.
