Investment rate on savings certificates is still much higher says finance minister
People are currently being discouraged from depositing in banks due to low-interest rates.
Meanwhile, the government's expenditure is constantly rising due to the high-interest rates on savings certificates.
The government's finance ministry has set a new ceiling on interest rates on savings certificates. However, economists think that the banks will not benefit from this decision.
In April last year, with the implementation of the single-digit interest rate of the government, the deposit interest rate was fixed at 6% and 9% for loans.
Another announcement, a few weeks ago, asked the banks to take into account the three-month average inflation while setting interest rates on deposits to increase the lower interest rates.
Meanwhile, various quarters of the government have promised to bring the banks into the competition by reducing the interest rates on savings certificates, but in the end, no major change has been made in the interest rates on savings certificates.
According to a new notification from the Internal Resources Division (IRD) of the finance ministry, 11.28% interest rates will still be available on 5 years savings certificates with an investment of up to Tk15 lakh, like before.
However, 10.30% interest will be available on investments ranging from Tk15,0001 to Tk30 lakh, which is 0.98 percentage points less than before. The interest rate on investments above Tk30 lakh will be 9.30%, down by 1.98 percentage points.
On the other hand, Pensioners Savings Certificates will still get 11.76% interest up to Tk15 lakh. It is available at 10.75% on the second ceiling and 9.75% on the third ceiling. This means it is down only 2.01 percentage points.
It is difficult to imagine any bank in the country getting such interest at the moment. The finance minister also admitted on Wednesday.
In this regard, Finance Minister AHM Mustafa Kamal said that the interest rate on savings certificates has been reduced very little.
“However, it was also taken into consideration that the marginalized people do not suffer. Interest has been reduced by only 1-2% compared to before,” he said.
Interest rates on investments below Tk15 lakh have not been reduced. “Even the investment rate in savings certificates is much higher than the deposit rate that still exists across the country,” the minister added.
“The banks will not be affected by this decision of the government even if it is a political decision,” said AB Mirza Azizul Islam, economist and former financial adviser of the caretaker government.
Speaking to the Dhaka Tribune on Wednesday, he said: “I don't think this decision of the government will give any benefit to the banks. People get only 5-6% interest from banks. So, they will still be more interested in saving certificates.”
On the other hand, 11.30% interest is earned by investing in savings certificates. In some cases, it has been reduced to 9.30%. But it’s still much higher than the bank’s interest rate.
“Naturally, the banks will not get any benefit. I think it is just a political decision being promoted. Because those who will get this reduced interest money are the rich of the society,” he added.
Meanwhile, Professor of Economics at Dhaka University Mohammad Helal Uddin told the media that the government is under financial pressure due to the coronavirus pandemic. So, the profit on savings certificates has been reduced.
The high interest rate that the government pays on savings certificates is a subsidy.
“There is also an argument. Why would the government subsidize those who can save Tk50 lakh or Tk1 crore even during this pandemic?” he asked.