Customers encash savings certificates more than purchasing

People’s capacity to invest in savings certificates has declined. Many who previously invested are now encashing their certificates and withdrawing funds.

The total value of certificates being encashed now exceeds the value of new purchases. This trend has persisted for several years.

As a result, the government has been unable to raise borrowing through savings certificates for the past four years.

Although savings certificates still offer higher interest rates than fixed deposit receipts (FDRs) and other financial instruments available in the market, investment by the general public has decreased.

One of the main reasons behind this shift is the impact of high inflation, which has reduced people’s disposable income.

Many no longer have sufficient funds to invest in savings certificates, indicating a broader decline in their capacity to save.

For lower- and middle-income families, government savings certificates have traditionally been a reliable means of saving.

The returns from these instruments have often served as an important supplementary source of income during emergencies, including medical needs or rising household expenses.

Government data show that people are not only purchasing fewer savings certificates but are also selling previously purchased ones to meet increasing household expenses.

Zakir Hossain works at a housing company. His son enrolled this month at American International University-Bangladesh.

The admission process required approximately Tk 150,000. As he did not have sufficient cash on hand, he encashed a savings certificate worth Tk 100,000.

Zakir Hossain told Prothom Alo, “I bought a family savings certificate worth Tk 100,000 in my wife’s name three years ago, anticipating that I might need funds for my son’s admission. Now I have encashed it to arrange the admission fees.”

Salma Alam, a bank officer and resident of Mohammadpur in the capital, purchased a flat two years ago with a bank loan. At that time, she encashed a savings certificate worth Tk 500,000 registered in her name to meet the expenses.

Salma Alam said, “My father arranged the savings certificate as support for difficult times. I encashed it immediately to manage funds for buying the flat; however, the pressure of family expenses has not eased. As a result, I have not had the opportunity to reinvest that money in savings certificates.”

Like Zakir Hossain and Salma Alam, many others are encashing savings certificates to cope with financial pressure. Consequently, withdrawals now exceed new investments.

High inflation has persisted for the past two to three years, and many households rely on savings certificates to manage regular expenses.

However, additional costs such as healthcare and children’s education have forced many to liquidate their savings.

Md Abdur Rahman Khan, secretary of the Internal Resources Division, told Prothom Alo that the net sales of savings certificates have remained negative for four years because encashments have exceeded purchases.

He added that large investors may be shifting to treasury bills or bonds, which could also contribute to the trend. The government is gradually reducing interest rates on savings certificates, making them less attractive for investment.

Currently, the National Savings Directorate offers four types of savings certificates: Family Savings Certificate, Pensioner Savings Certificate, Five-year Bangladesh Savings Certificate, and Quarterly Profit-Based Savings Certificate.

Except for the Family Savings Certificate, both individuals and institutions can invest in the other instruments. Upon maturity, the interest rates range between 11 and 12 per cent.

For the past four years, the government has been unable to obtain any net borrowing from the sale of savings certificates.

To clarify, the government sells savings certificates throughout the year, which the general public purchases.

Through these sales, the government generates substantial funds and, in return, pays profits to certificate holders. However, the government cannot retain the full amount raised from these sales.

From the total proceeds of savings certificates, the government must first repay amounts due upon maturity as well as funds withdrawn through early encashment.

The remaining balance constitutes net sales, or net borrowing, from the government’s perspective. For four consecutive years, this sector has yielded no net borrowing.

According to the latest figures from the Ministry of Finance, in the 2021–22 fiscal year, the government targeted Tk 320 billion (32,000 crore) in sales and achieved net borrowing of Tk 202.6 billion (20,260 crore).

The interim government’s Finance Adviser, Salehuddin Ahmed, has set a target of borrowing Tk 125 billion (12,500 crore) through savings certificates to finance the budget deficit for the 2025–26 fiscal year.

During the first eight months of the current fiscal year (July–February), net sales stood at negative Tk 5.55 billion (555 crore).

In other words, the government had to spend Tk 5.55 billion more on repayments—due to maturity and early encashment—than it earned from new sales during this period.

This indicates that the government has been unable to raise any funds through savings certificates to finance the budget deficit; instead, it has had to allocate additional funds to meet repayment obligations.

The National Savings Directorate recently communicated these figures in a letter to Abdur Rahman Khan, secretary of the Internal Resources Division.

In the letter, Director General Rowshan Ara Begum presented detailed data for February along with cumulative investment figures for the first eight months of the fiscal year.

In February of the current fiscal year, savings certificates worth Tk 64.07 billion (6,407 crore) were sold through banks, the savings directorate, and post offices.

However, repayments against previously purchased certificates amounted to Tk 75.71 billion (7,571 crore). Consequently, net sales for the month were negative Tk 11.65 billion (1,165 crore), meaning repayments exceeded sales.

Over the first eight months of the fiscal year, total sales reached Tk 613.13 billion (61,313 crore), while repayments amounted to Tk 618.68 billion (61,868 crore). This resulted in net negative sales of Tk 55.5 billion (555 crore).

Net sales were also negative in the previous three fiscal years. In 2024–25, net sales stood at negative Tk 60.63 billion (6,063 crore), while in 2023–24, they were negative Tk 179.99 billion (17,999 crore).

Higher investment in savings certificates implies greater government borrowing, which in turn requires the government to pay relatively high interest.

To reduce interest expenditure, the Finance Division of the Ministry of Finance initiated several measures during the tenure of the Awami League government, including lowering profit rates and reducing reliance on this sector.

These measures achieved partial success. However, due to increased encashment of certificates, the government now has to pay higher amounts in profit than before.

Abdur Rahman Khan stated, “Whether through savings certificates or treasury bills and bonds, the government must pay high interest in both sectors.”

He added that the 2025–26 budget has allocated Tk 1220 billion (122,000 crore) for interest payments on loans, a significant portion of which is designated for interest on savings certificates and treasury bills and bonds.

There is also another dimension to the issue. When the government cannot raise sufficient funds through savings certificates to cover the budget deficit, it must turn to alternative sources of borrowing.

In such cases, bank borrowing remains the most accessible option. Recently, the government has had to borrow substantial amounts from the central bank to meet urgent financial needs.

When the government borrows heavily from the banking sector, private entrepreneurs and businesses face reduced access to credit.

This constrains investment, limits employment generation, and slows down overall business activity and trade.