Positive real returns draw savings into banks

Savers have been earning positive real returns since June 2025 as deposit rates on the financial market have remained above the pace of inflation, according to the latest central bank data.

The widening gap has encouraged households to channel more funds into the formal banking system.

After a near-break-even situation in May, the margin between deposit rates and consumer price growth opened up from June and reached its widest point in August, reinforcing incentives to keep money in bank deposits rather than shift to cash, gold or informal savings channels.

The central bank's publication shows that deposit and inflation rates were broadly aligned in May 2025 before a favourable gap emerged from June and widened to a peak in August last.

In May 2025, inflation stood at 9.05 per cent, almost equal to the weighted average deposit rate of around 9.0 per cent, leaving savers with little real gain.

Conditions began to improve in June when inflation eased to 8.48 per cent while deposit rates remained steady at about 9.0 per cent, creating a modest but positive real return for depositors.

The trend was mixed in July. Point-to-point inflation was recorded slightly above 8.55 per cent, while deposit rates hovered just above 9.0 per cent, briefly narrowing the positive margin.

The gap widened significantly in August as overall inflation slowed further to 8.29 per cent, while deposit rates climbed above 9.0 per cent.

Bankers said liquidity conditions and competition for funds influenced deposit pricing during the period, although the overall trajectory remained favourable for savers.

This marked the widest spread between deposit returns and consumer price growth during the period, strengthening incentives for households and institutions to retain funds in banks.

The favourable trend continued into September. Deposit rates remained above 9.0 per cent, while inflation was recorded at around 8.36 per cent, ensuring that real returns stayed positive for the fourth consecutive month.

Bankers said that although inflation has been rising since November, deposit rates have continued to remain above inflation.

Syed Mahbubur Rahman, Managing Director and CEO of privately owned commercial bank Mutual Trust Bank PLC (MTB), told The Financial Express that deposit rates remain high, providing real returns to depositors.

"Depositors keep their money mostly in FDRs, and FDR rates remain at 10 per cent or above in the market," Mr Rahman said.

He added that deposits in the banking system have remained strong due to steady remittance inflows; otherwise, the gap might have widened further.

However, economists caution that sustaining the positive spread will depend on the future trajectory of inflation and monetary policy.

jasimharoon@yahoo.com