A saving grace: pandemic hits finances but drives sales of savings certificates

When people are struggling to earn enough to pay for basic needs like food and housing due to the coronavirus pandemic, sales of savings certificates have gone up in Bangladesh.

Researchers have called the trend “abnormal” as customers bought different types of savings instruments worth Tk 93.23 billion in June.

The amount is the second highest for a month and three times over the sale of April. Bangladesh recorded the highest sale of savings certificates – Tk 97.26 billion - in January.

Researcher Zaid Bakht sees no definite reason for the rise in the sales of savings certificates when the government has raised tax on interests and imposed other curbs amid the pandemic crisis that has increased the rates of joblessness and decline in income.

“It’s truly abnormal,” the researcher at the Bangladesh Institute of Development Studies told bdnews24.com on Tuesday.

“I don’t know why the sales of savings certificates have jumped when the people are selling their last assets for their families,” he added.

Ahsan H Mansur, the executive director at Policy Research Institute, agreed with Bakht that the rise is “abnormal”.

He pointed to two possible reasons behind the increase in sales of savings certificates – a record rise in remittance inflow and higher interest rates of savings certificates than other savings schemes.  

“You won’t get more than 6 percent interest from a DPS at bank, but savings certificates will yield up to 11.5 percent interest. Also, many consider depositing money in banks a risky venture. So, everyone may be investing in savings certificates considering it safe,” he said.

Bakht also said remittance inflow, which has pushed Bangladesh’s foreign currency reserves past $38 billion for the first time in history, might have played a role in increasing sale of savings instruments. 

“But it can’t increase this much,” he added.

The BIDS researcher does not think people are investing in savings certificates instead of depositing in banks. “The banks have good amounts of deposit,” he said.

The low interest rates at banks and long-term slump in the stock markets led the sales of savings certificates to jump in past few years, subsequently putting pressure on the government that repays the customers with interests.

To relieve some pressure, the government doubled the tax at source on investments in savings certificates to 10 percent in July last year.

It also made it Tax Identification Number, bank account and some other papers mandatory for buying savings certificates.

The move dragged the sales down, and finally, after the pandemic hit Bangladesh in March, sales dropped to Tk 6.61 billion in April. The government repaid the customers Tk 12.83 billion that month.

The government had set a target of borrowing Tk 270 billion through sales of savings certificates in 2019-20 fiscal year, but revised it down to Tk 119.24 billion after sales dropped. 

But the sudden jump in June, the last month of the financial year, led to a total of Tk 144.28 billion sales of savings certificates.