The interest rate on bank deposits has fallen even further in the wake of funds piling up in banks due to a sluggish investment scenario. The interest rate now on savings deposits and DPS schemes ranges from 4 to 8.5 percent. Clients are getting around 6 to 8.5 percent interest rates on depositing large sums of money as Fixed Deposit Receipt (FDR). If advance income tax, excise duty, and bank service charges are taken into account, depositors are losing money instead of profiting from their savings.
People who have a lot of money lying around are buying savings certificates instead of FDRs to make a profit. However, people who are trying to save a small amount of money every month are the ones who have to suffer. Meanwhile, the interest rate on fixed deposit and deposit pension schemes in many banks has come below 6 percent, which has prompted many to buy government savings instruments instead. However, investment in savings certificates require at least BDT100,000, an amount not many smalltime savers can afford. Considering potential losses, many clients are losing interest in depositing their hard earned money in bank accounts. The tendency to open DPS accounts in banks is on a steady decline. Tamanna Islam, an executive in a private organization, said: “Recently I got a raise in my salary, so I wanted to save the extra money in a bank account. However, none of the banks are offering more than 5-7 percent interest rate. So now I am having second thoughts about it.”
Not only clients, but bank officials too, are losing interest in DPS earnings. DPS and FDR activities have decreased quite a lot at banks. The situation is even worse in non-bank financial institutions. An official of the Motijheel branch of IDLC Finance, who did not want his name disclosed, said their institution is offering 6.50 to 7.675 percent FDR rate. While the rate might be slightly higher at new financial institutions, in general none of the financial institutions are eager to take deposits from clients. All the banks and other financial institutions are struggling with excess funds, and they can take loans from other banks at less than 6 percent interest rate. As a result, deposits are no longer a priority for them, he said. For the last couple of years, individual investment has been low in our country. Businessmen have blamed high-interest rate loans for the situation. In their attempt to reduce loan interest rates, banks have decreased interest rates on deposits. Industry analysts found that interest rates on deposits were 5.8 percent in February this year, down from 8.68 percent in February 2013. Following 2013, interest rates on deposits have been on a steady decline. An estimate found that if the interest rate of February 2013 remained unchanged, depositors would have gotten BDT300billion more than what they are getting now as interest or profit.
This downward trend has become a major concern for the central bank as well. In February, Bangladesh Bank issued a directive to commercial banks to take appropriate steps to counter this issue. The directive stated that interest rates on deposits are falling drastically compared to the interest rates on loans. In some cases, the interest rates on deposits has dropped below 5 percent. As a result, saving is being discouraged, and the tendency to spend money on wasteful consumption and unproductive activities is increasing. Bangladesh Bank has also suggested the banks actively stop the downward spiral of deposit interest rates. However, no visible reflection of these directives has been seen so far in the banking sector.
Dissatisfied with interest rates, many people are learning to invest in risky sectors. Since the stock market could not gain back people’s trust completely, many are investing in cooperative societies. Many unscrupulous companies are taking advantage of the situation and conducting fraudulent activities. Bangladesh Bank has issued a number of newspaper ads to discourage people from investing in some of these institutions. Former deputy governor of Bangladesh Bank, Khondokar Ibrahim Khaled, said, “Currently bank deposit rates are higher than the inflation rate. As a result, not only are depositors failing to make any profit, they are also ending up losing money. As a result, the tendency to save is in jeopardy. There is no room to cut deposit interest rates any further. The banks have to cut down on their other excessive expenses. There has to be greatere focus on recovering defaulted loans. By doing so, the cost of fundsfor banks would decrease, and they would be able to increase interest rates on deposits.”
According to sources, interest rates on deposits in the banking sector have been declining for the last four years. The most rapid fall was seen in 2015 and 2016, and the trend is still continuing. The situation is so bad that a depositor's earnings are at risk of becoming negative. The aftertax earnings from deposits are lower than the inflation rate in many cases. According to Bangladesh Bureau of Statistics (BBS) data, the country's annual inflation stood at 5.41 percent in February this year. Local banks are offering less than 4 to 5 percent interest on monthly deposits of BDT1,000 to BDT2,000. The rate is 6 to 7 percent at government banks. Bank Asia is giving the lowest rate at 3.99 percent on BDT500-BDT10,000 worth of deposits for three years. The interest rate on DPS is 6.5 percent at NCC bank, 8.5 percent at Premier Bank, 7 percent at National Bank, 7 percent at Islami bank, 6 percent at Sonali Bank and 7 percent at Agrani bank. Chairman of Association of Bankers, Bangladesh (ABB), and managing director and CEO of Mutual Trust Bank Ltd., Anis A Khan, said, “Our bank’s spread is below the 2 percent mark. As a result, our profit has declined. The banks have to decrease their spread in order to make a profit.”