Witnessing the pressure of high inflation and increasing living costs, people are breaking into their savings.
The rate at which savings certificates are being encashed is higher than the rate of new purchases. Overall, financial crises, low returns from banks, and other factors are driving people to withdraw from their savings.
Although savings certificates are traditionally seen as secure investments offering higher returns, purchases have declined despite the attractive interest rates.
From October to December of the current fiscal year, customers have encashed savings certificates worth BDT 25,695 crore. Meanwhile, purchases of savings certificates during the first half of the 2024–25 fiscal year have also decreased by 27%.
During a visit to Bangladesh Bank on Thursday, it was observed that some people were encashing their savings certificates before maturity, while others waited until maturity. Some were also there to collect their monthly or quarterly interest.
One such investor, Nargis Akhter, shared that after her husband's death, she had invested his entire pension in savings certificates to support her five children.
However, due to rising expenses, she was forced to consider breaking her savings. Like Nargis, many others are breaking into their old savings instead of making new investments.
According to Dr. Zahid Hussain, former lead economist of the World Bank’s Dhaka office, there are several reasons behind this surge in encashment. Speaking to The Ittefaq on Friday, he explained, “If savings decline or people are unable to save, how will they buy savings certificates? People are facing a severe income crisis—wages aren’t increasing while the prices of essentials keep rising. Those who rely on their savings for survival are forced to encash their savings during times of need, such as for weddings or medical expenses”.
He further added that with high interest rates on loans, people are using their savings to meet needs instead of borrowing.
“If income doesn’t increase, where will people get the money to save? Inflation is essentially consuming their savings”, he concluded.
Economists point out that high inflation is the main reason people are breaking into their savings. Expenses are rising twice as fast as wage growth, forcing people to withdraw from their savings.
Additionally, a lack of trust in some banks has worsened the situation, as many banks struggle to return customer deposits. This growing distrust in the banking sector is also contributing to the increase in savings encashments.
Bankers note that the gap between bank deposit rates and savings certificate returns has narrowed. As a result, many are now exploring alternative investment opportunities.
After the recent change in government, increased scrutiny of wealthy individuals’ bank accounts and investments has also driven some to break their savings certificates and invest in alternatives like gold.
To control inflation, the new government raised the policy interest rate to reduce the money supply in the market, though the impact has been minimal so far.
According to the latest data from the Bangladesh Bureau of Statistics, food inflation has remained above 10% for 10 consecutive months.
In January, food inflation slightly eased to 10.72%, but it has not dropped below double digits since March of last year, putting prolonged financial pressure on low- and middle-income households.
Encashments have significantly outpaced purchases among ordinary people. In the first six months of the current fiscal year, savings certificates worth BDT 32,354 crore were encashed. Of this, BDT 9,083 crore was encashed in October, BDT 8,150 crore in November, and BDT 8,461 crore in December, totaling BDT 25,695 crore over the three-month period.
As a result, the net sales of savings certificates decreased by BDT 2,244 crore in the first half of the fiscal year. In comparison, the net sales dropped by BDT 6,063 crore during the same period in the previous fiscal year.
The latest update from Bangladesh Bank shows that savings certificates worth BDT 30,109 crore were sold in the first six months (July–December) of the 2024–25 fiscal year.
In the same period of the previous fiscal year, sales amounted to BDT 41,290 crore—a decline of BDT 1,263 crore, or nearly 27%.
In an attempt to make savings certificates more attractive, the interim government increased interest rates this January. Previously, the profit rate for a five-year family savings certificate was 11.52%, but this has now been raised to 12.5%.
However, if the investment exceeds BDT 7.5 lakh, the profit rate will be 12.40%. For investors opting for quarterly profits, the rate is 12.30%, and in post office savings banks, the rate for fixed-term accounts will also be 12.30%.