People mainly invest in savings certificates as bank interest is low
The sale of savings certificates was on the rise in October after a downward trend during the previous two months, Bangladesh Bank data has revealed.
Last month, the government borrowed Tk4,620 crore from the sector, an increase of 26% on the Tk3,665 crore borrowed in September.
Figures in the central bank report show government borrowing in September to have been a blip; Tk3,975 crore and Tk5,053 crore were borrowed from the sector in August and July respectively.
The government has now borrowed a net amount of Tk17,315 crore in the first four months of the current fiscal year – equivalent to 57.43% of the planned total for the whole FY, and 8.49% higher compared to the same period last year.
However, the total investment in saving instruments was Tk26,963 crore, of which Tk2,916 crore has been paid as capital and Tk6,732 crore as interest from previous saving schemes.
Net investment – the amount left after paying the interest and capital from previously sold savings certificates – is deposited with the government exchequer. The government takes out money from there to use in various projects.
Central bank data shows that one-third of the savings instruments sold in the first four months were family savings certificates. From this, the government’s net borrowing is Tk6,316 crores.
It took another Tk4,543 crores from three-month interest bearing savings certificates and another Tk1,769 crores from pensioner saving instruments.
“The people still consider savings certificates as a safe investment,” Bangladesh Institute of Development Studies researcher Zaid Bakht said.
“Many purchase savings certificates before filing income tax returns. Generally, people are going for savings certificates because of low bank interest rates.”
The low interest rate offered by banks – currently between 4% and 6% – is one of the biggest reasons for people choosing to invest in savings instruments. On the other hand, various savings certificates offer nearly 12% interest rate.
Before announcing the budget for this fiscal year, Finance Minister AMA Muhith’s comment on slashing interest rates for savings certificates had a huge impact on the people.
Many raced to buy savings certificates at the end of the FY, fearing the interest rates may go down. As such, there were record sales of savings instruments in July.
In the last fiscal year, savings certificates worth over Tk75,000 crores were sold.
The interest on five-year family savings certificates on maturity is 11.52%. The rate is 11.76% for five-year pensioner savings certificates, 11.28% for five-year Bangladesh savings certificates, 11.04% for three-year savings certificates paying quarterly profits and 11.28% on three-year post office savings certificates.
This article was first published on Bangla Tribune