Disillusioned saving depositors begin diverting their funds into higher-paying term deposits to make up for waning interest income amid higher inflation, sources say.

The switch comes to such a pass that savings deposits in banks keep sinking for paltry returns as high inflation eats into interest banks offer under a government-set corridor, although lending rates override limits, according to bankers and officials.

As a matter of fact, they say, proportion of savings deposits to the total deposits in the banking industry continues falling as the difference of gains between savings and fixed deposits more than doubled.

According to the statistics available with Bangladesh Bank (BB), the country's central bank, the ratio of savings deposits to the entire deposit basket had been 23.42 until September 2022.

Afterwards began the topsy-turvy, with the equation dropping to 22.29 per cent in December in 2022, 21.88 per cent in March 2023, 21.65 per cent in June 2023, 21.79 per cent in September in 2023 and 21.43 per cent at the end 2023.

As the central bank-adopted contractionary monetary stance from June 2023 to rein in intractable inflation, the rates in term deposits go on an upturn and make the gains lucrative for the investors.

According to the official data, the share of fixed deposits in the total deposit portfolio had been 43.07 per cent till June 2023 and kept rising to 44.25 per cent in September and 44.42 per cent in December in the past year.

Seeking not to be quoted by name, a BB official said Bangladesh had total deposits in the banking system worth Tk 17.5 trillion at the end of December 2023. But the volume and share of savings deposits in the banks both kept declining as the gains on savings deposits are very little in the current context.

On the other hand, the rate on fixed deposits continues rising because of significant increases in benchmark rate called SMART which now stands at a raised 10.55 per cent for this April.

"This is probably the main reason behind the gradual drop and rise in saving deposits and term deposits respectively," says the central banker about the switch.

Managing Director and Chief Executive Officer of Dhaka Bank PLC Emranul Huq thinks savings depositors converted their deposits to term deposits riding on the higher gains from fixed deposits amid contractionary monetary regime.

Currently, many banks offer more than 10 per cent as interest on term deposits and there are few having liquidity shortages offer even over 11 per cent on one-year-tenure term deposits, he says in a firsthand account of the swings within banking circles.

The maximum rate on savings deposits in banks is in-between 4.0 per cent and 4.50 per cent. "This is the main reason behind the gradual drop in saving deposits," the experienced banker told the FE correspondent.

Apart from growing conversion into term deposits, MD and CEO of Mutual Trust Bank (MTB) PLC Syed Mahbubur Rahman mentions that there are savings depositors who withdraw their funds and invest in higher-end government securities to make a killing on the money- market movements.

"This is another reason behind the squeezing saving-deposit portfolio in the banking sector."

Mr Rahman also notes that the cost of living has gone up in recent times because of higher-inflation regime that erodes savings.

"There are a good number of savers who broke their savings to meet their rising daily expenses. This is another reason," the bank's top executive says further explaining the squeeze.