REJAUL KARIM BYRON and AHSAN HABIB

The interim government has increased interest rates on various national savings certificates to upwards of 12 percent in an effort to make these instruments more attractive to savers and to cool inflation.

The finance ministry issued a circular yesterday regarding the interest rate hike on savings tools. The new rates will be effective from January 1, according to the circular.

The move comes in face of falling revenue collection, plummeting foreign funds and higher debt servicing pressure, prompting the government to look for money to meet the overall expenditure.

The rise in interest rates will offer some relief to fixed-income groups, whose earnings have been squeezed by elevated inflation for about two years.

However, previous investors will continue to receive interest based on the earlier rates.

Previously, interest rates on the four savings certificates offered by the Department of National Savings ranged from 11.04 percent to 11.76 percent.

The interest rates will now be set according to the weighted average interest rates of five-year and two-year treasury bonds. Every six months, the savings certificate rates will be adjusted after reviewing these treasury bond interest rates.

Investors will receive interest based on the rate applicable during their investment period.

Additionally, a premium of up to 50 basis points will be added to the weighted average treasury bond interest rates when setting savings certificate rates, according to a finance ministry source.

The savings instruments include the five-year Bangladesh savings certificate, the three-monthly profit-bearing Sanchayapatra, the five-year family savings certificate and the five-year pensioners’ savings certificate.

Currently, there are three different interest ceilings for these four savings certificates.

Under the new system, the interest rate on the five-year Bangladesh savings certificate will be 12.4 percent for investments up to Tk 7.5 lakh. For savings above Tk 7.5 lakh, the interest rate will be 12.37 percent.

Currently, a saver receives 11.28 percent interest for investments up to Tk 15 lakh after maturity, 10.30 percent for investments between Tk 15 lakh and Tk 30 lakh, and 9.3 percent for investments above Tk 30 lakh.

In the case of the three-monthly profit-bearing Sanchayapatra, the new interest rate will be 12.3 percent to 12.25 percent. Currently, the interest rates are 11.04 percent to 9 percent.

Professor Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue (CPD), said the interest rate hike will, on one hand, increase the government’s loan repayment burden.

On the other hand, he said, it will make it more difficult for the private sector to get loans from the banking sector.

“People may keep their funds in the banking sector. But it may not flow to private players. Rather, it will flow to the government,” Rahman said.

“As the non-bank financial institutions [NBFIs] were offering higher interest rates, people earlier were not encouraged to invest funds in the savings tools,” he said.

The economist noted that the government has taken this decision as an inflation control measure, which aligns with its contractionary monetary policy.

At the same time, it will also provide the government with more liquidity to cover its expenditures, he added.

For the family savings instrument, the new interest rates will range from 12.5 percent to 12.37 percent while the existing interest rates range from 11.5 percent to 9.5 percent.

Similarly, the interest rates on the pensioners’ scheme will be 12.55 percent to 12.37 percent under the new rates. At present, these rates range from 11.76 percent to 9.75 percent.

Meanwhile, interest rates on other savings instruments -- the wage earners’ bond, the US dollar investment bond and the US dollar premium bond -- will remain unchanged.

The interest rate on post office term deposits ranges from 12.30 percent to 12.25 percent.

GOVT IN SEARCH OF MONEY

During the July-September period of fiscal 2024-25, the total sale of national savings tools amounted to Tk 14,991.95 crore, which was 30.77 percent lower compared to the same period of previous year.

During the first quarter of FY25, total