NSC sales decline in Oct-Dec after Jul-Sep growth in FY25

Due to rising inflation, the demand for savings certificates has significantly declined over the past six months.

According to Bangladesh Bank data, net investment in savings certificates recorded a negative growth of Tk2,244 crore in the first half (July–December) of the current fiscal year (FY25).

However, in the first three months—July, August, and September—net sales of savings certificates stood at Tk8,333 crore. In contrast, the following three months saw a downtrend in net sales.

Experts attribute this decline to the diminished real returns on savings certificates due to high inflation. Traditionally, savings certificates offer a fixed return over a set period, making them a low-risk investment.

However, with inflation rising sharply, real returns have turned negative. For example, if the interest rate on a savings certificate is 4% annually while inflation is at 8%, the real return becomes negative, eroding purchasing power.

Consequently, investors are shifting towards alternative investment options such as stocks, bonds, or real estate, which offer better potential returns.

Food inflation has remained above 10% for ten consecutive months. According to the Bangladesh Bureau of Statistics (BBS), food inflation slightly decreased to 10.72% in January, down from 12.92% in December.

However, it has not dropped to single digits since March of last year. Meanwhile, overall inflation fell to single digits in January at 9.94%, down from 10.89% in December.

Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development (InM) and former chief economist of Bangladesh Bank, told the Daily Sun that inflation erodes purchasing power, leading individuals to seek investments with higher returns. This shift has contributed to the declining popularity of savings certificates.

Dr Zahid Hussain, former lead economist at the World Bank’s Dhaka office, highlighted the economic distress caused by inflation.

“In times of inflation, many people are under immense stress. Over the past six months, political unrest has further strained all sectors of the economy, forcing many to withdraw their savings to sustain their livelihoods,” he said.

Since October, customers have been cashing in previously purchased savings certificates instead of buying new ones. In October alone, net sales fell by Tk3,225 crore.

The trend continued in November and December, with net investments at negative Tk3,430 crore and negative Tk2,204 crore, respectively.

Interestingly, the first three months of FY2024-25 witnessed an unusual surge in savings certificate sales. Net sales stood at Tk2,188 crore in July, Tk2,036 crore in August, and Tk4,109 crore in September—nearly the combined total of the previous two months.

The net sale of savings certificates represents the amount remaining after paying interest and principal on previously sold certificates.

Economists consider this a form of government borrowing, reflecting the state’s financial reliance on public savings.

For FY25, the government’s net borrowing target from savings instruments is set at Tk15,400 crore, down from Tk18,000 crore in the previous fiscal year.

However, in FY24, the net investment was negative at Tk21,124 crore, meaning the government did not borrow any amount from this sector. Consequently, the borrowing target has been reduced for FY25.

By regulation, after covering interest and principal payments on previous savings bonds, the remaining amount—net sales—is deposited into the government treasury for use in various projects.

To counteract declining sales, the government has raised interest rates on all types of savings certificates effective from January.

Additionally, the Ministry of Finance now considers savings certificates a tool for addressing budget deficits and reducing dependence on bank loans.

As part of this strategy, the government is encouraging investment in savings certificates.

Under the revised rules, the interest rate on the five-year Bangladesh Savings Certificate is now 12.4% for investments up to Tk7.5 lakh and 12.37% for amounts exceeding that threshold.

For the three-monthly profit-bearing Sanchayapatra, the interest rate ranges from 12.3% to 12.25%, while the Family Savings Instrument offers rates between 12.5% and 12.37%. Pensioners’ savings schemes now have interest rates ranging from 12.55% to 12.37%.

Meanwhile, banks are currently offering interest rates of 9% to 11% on fixed deposits, with some liquidity-strapped banks going as high as 13%.

In comparison, savings bonds now offer rates between 11% and 11.5%. This shift marks a significant decline in the advantage savings bonds once had over bank deposits and treasury instruments.