Commercial banks and other deposit-taking and investment institutions could be in line for increased competition from the Central Bank following the re-launch its savings bonds programme today with a nominal value of $10 million.
With the aim of attracting more young people to take up the instruments, the state financial institution re-introduced its savings bonds with an increase in the maximum value per individual from $50,000 to $100,000.
It has also introduced a single certificate system, replacing the previous practice of issuing certificates of different denominations.
The 75th savings bond issue will attract an interest rate of 5.5 per cent over a five-year period. The minimum savings bonds one can purchase is $50.
Central Bank officials say based on a recent research, many Barbadians, especially young people, were either not familiar with savings bonds or were unaware that they existed. It is for that reason, Central Bank Governor Dr Delisle Worrell said, the institution will be promoting the instruments more aggressively.
Responding to questions from the media, he said: “The financial system in Barbados offers a wide range of financial services and financial instruments for the varying needs of our society. Savings bonds complement the choices available to individuals from banks, insurance companies, mutual funds and credit unions as well as longer-term Government bonds, treasury notes and shares issued or traded on the securities exchange”.
He added: “What we want to ensure is that the public is aware of the range of instruments. The financial market, like all other markets, is intended to be competitive. So it is a competition to the commercial banks and they are aware of that, just like credit unions are a competition to the commercial bank. It is all about a range of choices.”
Dr Worrell said it was “a mystery to him” that financial advisors were not informing individuals about government savings bonds and their importance.
“The maintenance of the minimum savings deposit rate was in fact a distortion in the system and it was creating difficulty not just for commercial banks but for customers . . . because of that minimum savings rate,” he explained.
“So when it was removed, we wanted to be sure that the people who are going to be affected are aware that this better alternative exists. The alternative is always there,” Dr Worrell added.
The Central Bank governor said the upper limit of $100,000 was to ensure that “the bonds reach the main target for which they are intended – namely small and medium savers”. “It has also been agreed to issue new series of bonds as supplies of available bonds are depleted so that there will be no shortage of bonds for purchase at any time,” he said.
Senior operations officer in banking and instruments at the Central Bank, Linel Franklin, said the savings bonds were “a very good opportunity for parents and guardians . . . for future education now that seems to have become a problem.”
“They are excellent alternatives to a savings account especially now that the minimum savings rate has been removed and we at the Central Bank are not saying this alone,” she said, adding that people saw savings bonds as safe and secure liquid investment.
Franklin said the Central Bank had a number of safety measures in place in order to prevent individuals from buying more than the limit of $100,000.
Dr. Worrell hinted that credit unions could also become issuers of savings bonds, noting that there was a request from credit unions to do so.
He said once “the first set of amendments and upgrades” were made, it would be an area they would look closer at.