Soaring post office deposits to come crashing down

Savings accounts in post offices saw soaring deposits in recent years thanks to high interest rates offered by the government to tempt people in the suburbs and rural areas to use formal channels for parking their funds.

Deposits in ordinary accounts in post offices more than doubled to Tk 2,930 crore in fiscal 2018-19 from Tk 1,325 crore four years earlier, according to data from the Department of National Savings (DNS).

A similar trend has been seen in cases of fixed deposit accounts in post offices.

Savers deposited Tk 13,950 crore in fiscal 2018-19 in fixed deposit accounts in post offices, which was more than two and half times the deposits received in fiscal 2014-15.

"High interest rate appears to be one of the reasons behind the rising deposits," said Khandker Shahnur Sabbir, deputy postmaster general of Bangladesh Post Office.

Due to the government's crackdown over the last several years, there has been almost no presence of multi-level marketing (MLM) firms that used to offer exorbitantly high interest rates to attract deposits.

The absence of these informal channels might be another reason behind people's interest in depositing money in post offices.

"And a huge number of small savers in the rural and suburban areas deposited their money in post offices," said Sabbir, also a senior postmaster of Dhaka GPO.

Until February 12, the finance ministry offered as high as 11.28 per cent interest on a three-year fixed deposit account with post offices, which is higher than the interest rates given by banks.

In case of ordinary accounts in post offices, the interest rate was 7.5 per cent, which is also higher than the rates offered by banks for savings accounts.

However, the government's latest move to cut interest rates on savings in post offices has created frustration among savers and is likely to bring down savings and encourage the return of illegal MLMs.

For example, interest rate on three-year term fixed deposits was reduced to 6 per cent from 11.28 per cent as the government aims to bring down interest rates in bank deposit and lending.

The interest rate on ordinary and fixed deposit accounts in post offices was almost close to the interest rates offered by national savings certificates until last week.

But the interest rates on deposit accounts in post offices were halved suddenly while the interest rates on savings certificates remained unchanged.

The interest rates on ordinary accounts and fixed deposit accounts in post offices have been reduced in line with the banks in a bid to create a balance, said a finance ministry official.

This is the first time the interest rates of deposit accounts in post offices and savings certificates of the DNS saw a gap in interest rates.

Khondker Ibrahim Khaled, a former deputy governor of Bangladesh Bank, said the latest move would discourage savings.

"The interest rate on banks' savings has been cut by force. Now, the interest rate on deposits in post offices has also been reduced. Such an action affecting the market mechanism will not bring any good to the economy," he said.

The government's total outstanding liability stood at Tk 289,267 crore as of June 2019. Of the amount, ordinary accounts and fixed deposit accounts in post offices were 13.97 per cent, according to DNS data.