Originally posted in Daily Observer on 20 September 2025
Inflation eats up savings, forcing many families to withdraw cash
High inflation is steadily eating into household incomes, forcing many Bangladeshis to draw down or even prematurely encash their savings despite rising interest rates.
Bank deposits and government savings tools, once seen as a secure refuge, are losing their appeal as people struggle to meet daily expenses.
For nearly three years, the country’s inflation rate has hovered around 8 per cent, with food inflation remaining above that mark for the past six months. According to the Bangladesh Bureau of Statistics (BBS), the prolonged price surge has already pushed the national poverty rate up by roughly 8 percentage points, with a recent survey by the Power and Participation Research Centre (PPRC) estimating current poverty at 26.7 per cent. Around 8 per cent of household income is now spent solely on coping with higher food costs.
At Bangladesh Bank’s headquarters in Dhaka, the impact was visible. Customers queue to withdraw or break savings certificates before maturity, or to collect monthly or quarterly interest just to keep their households afloat.
Nargis Akhter, a widow supporting five children on her late husband’s pension savings, said she had no choice but to break her deposits. “We invested all of my husband’s pension money. It used to cover our needs, but now it is no longer enough,” she said.
Many savers like Nargis are liquidating investments rather than making new ones.
Economists warn that this trend reflects a deeper income crisis. Former World Bank Dhaka chief economist Dr. Zahid Hossain explained, “When wages stagnate and prices rise, people cannot save. They are forced to use whatever savings they have for urgent needs like weddings or medical expenses. Even with higher interest rates, if incomes don’t increase, savings will decline.”
Bankers report that the gap between deposit and lending rates has narrowed, making alternative investments such as gold or informal ventures more attractive. Increased scrutiny of bank accounts and investments under the new government has also encouraged some depositors to shift funds elsewhere.
To curb inflation, the government recently raised the policy interest rate, aiming to reduce money supply. But the impact has been limited so far. Food inflation, though slightly down in January, remains stubbornly above 8 per cent, keeping pressure on low- and middle-income families.
Meanwhile, the government has lowered interest rates on national savings certificates to maintain macroeconomic stability.
This decision, however, has hurt retirees and others who depend on savings profits for monthly expenses. “When income falls, people usually cut consumption-reducing both the quality and quantity of food. During high inflation, this is especially dangerous,” economists caution.
The Bangladesh Bureau of Statistics notes that GDP growth has slowed and underemployment has risen since the pandemic, further squeezing household finances. With wages failing to keep pace with prices-some estimates suggest costs are rising twice as fast as incomes-breaking savings has become a survival strategy.
Government relief measures have provided only temporary respite. The Trading Corporation of Bangladesh (TCB) sold basic goods from trucks at subsidised prices during Ramadan and Eid but discontinued the program on September 5 despite strong demand.
TCB Deputy Director (Commercial) Md. Shahadat Hossain said the truck sales were meant to be temporary. “Since the launch of the family card, we withdrew the trucks. We have a fixed subsidy and manpower constraints in purchasing and distributing goods to one crore families. Whether and when it will resume depends on the Ministry of Commerce,” he said.
Experts argue that more sustained support is needed. CPD Distinguished Fellow Prof. Mustafizur Rahman noted that while some rural social safety programmes exist, urban residents receive little protection. “When purchasing power is falling, subsidised truck sales should continue. Many middle-class families were also standing in TCB lines,” he said.
Other countries facing similar crises have adopted targeted responses. Sri Lanka and Pakistan introduced specialised programmes during periods of high inflation, while India’s Aadhaar-linked welfare system provides direct support. Bangladesh’s existing social protection schemes remain fragmented and insufficient to cushion urban low- and middle-income groups.
The interplay of high inflation, stagnant wages, and declining confidence in banks is creating a vicious cycle. Economists point out that when households deplete savings to meet daily expenses, national investment capacity suffers, slowing economic growth and further limiting wage increases.
Banks, meanwhile, face growing liquidity concerns. Some depositors fear delayed payments or default risks, prompting them to break savings early. Rising policy rates have also made borrowing costlier, discouraging businesses from expanding and hiring, which in turn constrains income growth.
For millions of ordinary citizens, these macroeconomic dynamics translate into painful daily trade-offs. Market visits reveal modest declines in rice and vegetable prices but not enough to restore purchasing power. Consumers complain that Tk500 now buys vegetables that last less than two days for a family of four.
Households are adjusting by cutting protein intake, delaying medical care, or reducing education expenses. Several studies show that during periods of high inflation, poor and fixed-income groups face the sharpest deterioration in diet quality and health outcomes.
Economists emphasise that controlling inflation is key to reversing the trend. Stabilising food prices, boosting employment, and ensuring reliable social protection would help restore confidence in formal savings instruments.
Dr. Zahid Hossain warned that reducing savings profits without addressing inflation is “like adding salt to a wound.” He urged the government to pair monetary tightening with targeted relief programs to protect vulnerable groups while encouraging long-term savings and investment.
Until then, families like Nargis Akhter’s will continue to deplete the very savings meant to secure their future-an alarming signal for both household welfare and the broader economy.
