Bank interest rate now higher than savings certificate profit
The interest rates on bank loans are rising, with some banks charging more than 13 per cent in interest against their lending. Under its influence, the interest rates on bank deposits have also been on an upward trend, with some even surpassing the rates of savings certificates.
Some banks were already facing liquidity crunches due to the appreciation of the US dollar, a slowdown in loan collections, and an overall image crisis. It led them to attract deposits by offering extra interest. Now, almost all banks have increased deposit interest rates, enabling clients to earn a good return.
Some banks are aggressively collecting deposits, offering higher interest rates than savings certificates and other bonds.
Mehmood Husain, who served as the managing director of Bank Asia, NRB, and National Bank, told Prothom Alo that the government is borrowing money at high interest rates, whether to control inflation or any other reasons. It pushed up interest rates at banks.
Moreover, some banks are borrowing money at higher interest rates due to declines in their loan recoveries and a local currency crisis. Additionally, the flow of government deposits has slowed down.
At least two private banks are now inviting deposits with the promise of doubling the money in five-and-a-half years. They are offering 13.40 per cent interest on particular types of deposits.
Offers of high interests
Different types of bank accounts are used to deposit money. Those engaged in business and requiring daily transactions typically open current accounts, which usually offer lower interest rates. Similarly, savings accounts also offer relatively lower rates.
Banks provide higher interests for different terms, fixed deposits, and schemes.
At least two private banks are now inviting deposits with the promise of doubling the money in five-and-a-half years. They are offering 13.40 per cent interest on particular types of deposits.
Some banks open fixed deposit accounts for one year with monthly interest facilities. A particular bank is offering up to 11 per cent interest on one-year fixed deposits, while another provides 12.25 per cent interest for six-year deposits. There are some other banks that are offering interest rates close to the mentioned rates.
It is necessary to increase the overall interest rate. However, the aggressive raising of interest rates by some banks to collect deposits is not healthy. These banks are weak and should pursue mergers.
Banks and financial institutions regularly update their interest rates on their websites.
On the condition of anonymity, the managing director of a bank told Prothom Alo that at the beginning of the Covid-19 pandemic, some banks lowered deposit interest rates to 3-4 per cent. Still, some clients continued to keep their deposits in the banks due to a lack of alternatives. But some people withdrew their deposits and invested in other better options.
These developments created a trust deficit among clients, and despite offering lucrative interest rates, banks are now failing to generate the expected response.
Interest rates on savings certificates and bonds
Savings certificates, another investment product, require investments for three to five years. If redeemed before maturity, depositors will enjoy a minimum profit rate of 7.71 per cent. Depending on the tenure and amount of deposits, there is a chance to get a maximum profit of 11.76 per cent on savings certificates.
However, those with investments of more than Tk 1.5 million in savings certificates receive relatively lower profits.
Bonds also yield high interest. Recently, the government borrowed money at 11.40 per cent interest through 91-day treasury bills, 11.45 per cent interest on 182-day bills, and 11.60 per cent interest on 364-day bills.
Bonds with a two-year tenure bear interest of 12 per cent, and it will rise proportionately for higher tenures.
Need for interest rate hike
In April 2020, the authorities determined the maximum interest rate on bank loans at 9 per cent, and the maximum rate on deposits at 6 per cent, under an initiative of the bank chairmen.
Later, economists suggested lifting the cap on interest rates with the onset of the dollar crisis in 2022 and inflation nearing 10 per cent.
Ahsan H Mansur, executive director of the Policy Research Institute (PRI), said it is necessary to increase the overall interest rate. However, the aggressive raising of interest rates by some banks to collect deposits is not healthy. These banks are weak and they should pursue mergers.
He noted that the dollar market has stabilised due to the rise in the overall interest rate and suggested allowing interest rates to rise for at least six months to control inflation.