Fixed deposits fall, savings attracts customers

KATHMANDU, APR 26: 

Depositors have taken an interest in keeping money as savings deposits instead of fixed accounts as interest rates for fixed deposits have waned in recent times. In recent months, money saved in savings deposits has seen higher growth than in fixed deposits as financial institutions have stopped giving stupendous interests for fixed deposits. 

In the beginning of the fiscal year, savings deposits had declined while fixed had gone up as deposit growth was struggling. However, now since deposits have grown by 9.6 per cent from the beginning of the fiscal year, savings deposits have gone up by 12 per cent and fixed expanded by 8.4 per cent by mid-February, according to monthly financial statistics published by the central bank. The total deposit with financial institutions reached Rs 957 million by mid-February from Rs 873.5 million in mid-July, 2011. The money in savings deposits at financial institutions has increased at an average of 6.5 per cent each month while fixed deposits have gone up by six per cent on average. 

“The public is choosing savings over fixed deposits as interest rates being offered for fixed accounts are not very attractive these days,” said spokesperson of the central bank Bhaskar Mani Gyanwali. Financial institutions are now sitting in a comfortable liquidity situation so they do not need to offer higher interest rates to attract new deposits. 

Of late, most of the finance companies and development banks are offering about 10 per cent interest on average for fixed deposits while fixed deposits at commercial banks 

offer eight per cent yield on average. On the other hand, financial institutions are offering interest as high as eight per cent on savings. Fixed deposits being deposited for a fixed tenure are generally offered higher interest rate. The higher interest rates compensate for money getting tied-up with banks for the fixed tenure unlike saving deposits that allows depositors to withdraw funds at their preference. “The interest rate being offered for fixed and savings accounts are not very different so depositors are inclined to put their money where they can withdraw at their own disposal,” he added. Though deposit interest rates have come down due to the flush liquidity, lending interest rate has seen only a nominal downward revision making credit still expensive for borrowers. The central bank governor has said that the lending interest rate will also decline after the money, deposited under fixed deposits at high interest rates last year when liquidity was tight, matures. The slowing number of fixed deposit

might herald a lowered interest rate for credits as well.

Source: THT