Gone are the days of running a household or paying for children's education cost with the interests of the investments in savings certificates.
There are such conditions, including filing income tax returns for a certain amount of investments, for the popular savings tool that the savers are turning away from it day by day.
The sales of savings certificates are plummeting at an alarming rate while the government borrowing from the banking system is swelling.
The government has to provide a comparatively higher interest against the savings certificates, though the bank loans are available at a cheaper rate.
A delegation of the International Monetary Fund (IMF) finished a two-week trip to Dhaka on Wednesday. They, in a meeting with the finance division during the trip, recommended that the interest rate on savings certificates should be close to the market rate – the figures maintained by the banks.
It was learnt that the government is considering going with the IMF recommendation and slashing the interest rate on savings certificates further.
The government has a target for collecting a total of Tk 350 billion by selling the savings tool in the fiscal year 2022-23. The sales stood at Tk 7.32 billion after the first three months (July-September) of the fiscal, against the sales of Tk 116.62 billion recorded in the same period a year ago.
The government has been applying some direct and indirect methods to reduce the sales of the savings bonds.
Meanwhile, the government borrowing from the banking system rose to Tk 125.26 billion in the July-September period this fiscal, which was Tk 42.18 billion in the previous year’s corresponding period.
The target of internal borrowing for the current fiscal was set at Tk 1463 billion, where the banking system is supposed to provide Tk 1063 billion, according to the central bank sources.
There are opinions in favour and disfavour of the high interest on savings certificates. The average interest for four types of the savings tool was more than 11 per cent, but the government lowered the interest rate and also introduced several tiers through a gazette notification in September last year. Its sales have been declining since then, said individuals concerned.
One of the reasons for the decline is the mandatory filing of income tax return for the purchase of savings bonds worth above Tk 500,000.
The Bangladesh Bank (BB) said in a gazette notification in July that the commercial banks should take necessary measures to properly comply with the section-48 of the Finance Act, 2022 in the case of investment of more than Tk 500,000 in savings certificates and post office savings schemes.
Amena Khanam, a resident of New Eskaton, was bearing her son's educational expenses and mother-in-law's medicine costs through a Tk 2 million investment in savings certificate.
She said, “I am not investing (again) in fear of filing returns. And the price of commodities… I have cashed a savings certificate and am now running the family (with the proceeds). The government could have retained the previous interest for us."
Interest may fall further
As it is quite impossible to reduce interest rates due to political reasons, some conditions have been placed for the purchase of savings certificates. The government succeeded here as the sales dropped nowadays.
The investors now avail over 11 per cent interest for investments up to Tk 1.5 million and the interest rate falls to an average of 10 per cent for investments worth up to 3 million. It falls further to 9 per cent on average for investments of above 3 million.
Salim Raihan, executive director of South Asian Network on Economic Modeling (SANEM), said that there are reports that many are cashing their savings certificates. It is a matter of concern.
However, a positive aspect from the point of view of the government is that the less sales of savings certificates would slash the spending on interest, he added.
Asked if the government has anything to do for the people like Amena Khanam, the economist said a class is in danger. There might be arrangements for a high interest for the elders, retirees, and those who are really in danger.