Why are government bond interest rates higher than bank deposit rates? A question I first realized on YouTube about who benefits from this system
Introduction—A question that suddenly occurred to me while watching YouTube
Today, while watching an economics-related video on YouTube, there was one explaining the difference between bank deposit interest rates and government bond interest rates.
I was listening casually, but halfway through, I thought, “That certainly is strange.”
It stated that the interest rate on government bonds issued by the state is higher than the interest rate on money deposited in a bank.
When you think about it, it is a strange story.
A bank is a business. Of course, banks are subject to strict regulations, and deposits are protected up to a certain amount by the deposit insurance system.
Even so, when comparing depositing money in a bank versus lending money to the Japanese government, wouldn’t it be natural to think that government bonds have higher creditworthiness?
However, the interest rates on the ordinary and time deposits at the banks we usually use can be lower than the yields on government bonds.
You can receive a higher interest rate on government bonds, which are considered to have higher safety.
On the other hand, money deposited in a bank does not earn much interest.
What on earth does this mean?
And, I became even more curious.
Who exactly is benefiting from this system?
1. What are the interest rates for individual government bonds in November 2026?
First, I checked the actual numbers.
The interest rates for individual government bonds offered in November 2026, as published by the Ministry of Finance, are as follows.
Type of Government Bond Annual Interest Rate (Before Tax) Floating 10-Year 1.85% (Initial) Fixed 5-Year 2.17% Fixed 3-Year 1.94%
Based on published materials as of November 13, 2026.
Looking at the 2.17% annual interest rate for the 5-year fixed bond, I think it has become quite high.
In the past era of ultra-low interest rates, money deposited in banks earned almost no interest.
However, now that we have returned to an era with interest rates, it has become possible to receive around 2% annual interest on government bonds.
If you were to invest 1 million yen in a 5-year fixed-rate government bond for individuals, the annual interest before tax would be 21,700 yen.
Even after deducting taxes, it would be approximately 17,292 yen.
On the other hand, if a bank’s ordinary savings interest rate were 0.4% per year, the annual interest earned from depositing 1 million yen would be only 4,000 yen before tax.
Even with the same 1 million yen, a large difference arises in the annual interest received.
Of course, interest rates vary by bank, and the flexibility of using your money differs between ordinary savings and 5-year government bonds.
These are not products that can be simply compared.
Even so, this interest rate gap cannot be ignored.
Are we not suffering from a significant opportunity loss without even realizing it?
2. Why are bank interest rates lower than government bonds?
Here, I would like to consider how banks work.
Banks earn revenue by taking deposits from customers and lending them to companies or individuals, or by investing in securities such as government bonds.
One of the basic sources of revenue for banks is the difference between the interest rate for raising funds and the interest rate for investing them, known as the interest margin.
For example, if a bank pays depositors 0.4% interest per year and can invest those funds at 2% per year, a 1.6% interest rate gap is created on the surface.
However, there are differences in the duration between a bank’s funding and investment, and costs such as credit risk, interest rate fluctuation risk, and operating expenses also arise.
Therefore, the interest rate gap does not translate directly into bank profit.
Still, it is certain that being able to keep deposit interest rates low is advantageous for bank earnings.
So, why don’t banks pay depositors interest rates comparable to government bonds?
One reason, I believe, is that depositors do not necessarily choose banks based solely on interest rates.
Bank accounts are deeply embedded in our daily lives, from salary deposits and utility bill payments to credit card settlements and home loans.
Not everyone immediately switches to another bank just because the interest rate is slightly lower.
For banks, these deposits serve as a relatively stable means of raising funds.
Furthermore, savings accounts offer the convenience of being able to withdraw money at any time.
Their nature as a product is different from that of government bonds.
In other words, the fact that deposit interest rates are lower than government bond interest rates is not in itself a contradiction in financial theory.
However, should we simply be satisfied with that?
Isn’t there also an aspect where banks are able to collect funds under favorable conditions because depositors are not fully aware of the differences in interest rates?
That is what bothered me.
3. Do banks profit from buying government bonds?
Another thing I want to consider is the relationship between banks and government bonds.
Banks are one of the important investors in government bonds.
They sometimes invest a portion of the funds collected as deposits into government bonds.
A simple question arises here.
The government sells government bonds to banks, and banks purchase government bonds with money collected from depositors.
If that is the case, wouldn’t it be better for the government to sell government bonds directly to individuals from the start?
Is it really necessary to go through banks?
Of course, in reality, the government bond market is much more complex.
Various entities, including not only banks but also insurance companies, pension funds, investment trusts, overseas investors, and the Bank of Japan, hold government bonds.
Also, the market price of government bonds held by banks can fall due to rising interest rates, so they are by no means products that unconditionally generate profit.
Even so, if more opportunities were created for individuals to purchase government bonds, there is a possibility that some of the household funds currently concentrated in bank deposits could shift toward government bonds.
Banks might also find it necessary to offer more attractive interest rates to attract deposits.
Thinking about it this way, I believe that increasing individual holdings of government bonds also serves to encourage competition in the financial market.
4. Shouldn’t the government sell government bonds directly to individuals?
Here is what I found most questionable.
The Japanese government issues a large amount of government bonds.
Securing stable buyers for government bonds is an important issue for the country’s fiscal management.
If that is the case, shouldn’t the government sell government bonds to individuals more actively?
In fact, a system for government bonds for individuals already exists.
Even now, individuals can purchase government bonds through banks, securities companies, and other institutions.
The minimum purchase amount is 10,000 yen, allowing for investment from relatively small amounts.
In other words, it is not that individuals cannot purchase government bonds.
However, what I am thinking about is one step further.
Couldn’t the government create a system to sell government bonds to the public in a more understandable and accessible way?
For example, by establishing a dedicated purchase window operated by the government and utilizing My Number cards, individuals could apply directly.
This would reduce the hassle of opening accounts at banks or securities companies and allow for centralized management from the purchase of government bonds to the receipt of interest and maturity redemption.
Of course, there are costs involved in identity verification, fund settlement, system operation, and cybersecurity measures.
Direct sales would not necessarily result in lower costs.
Even so, considering the current financial infrastructure, I think it is worth considering.
Shouldn’t selling government bonds directly to the public become more common?
5. What would happen if government bonds were excluded from inheritance tax?
I thought about this further.
What would happen if government bonds held by individuals were excluded from inheritance tax?
This is my policy proposal, and there is currently no such general tax exemption system.
Currently, government bonds acquired through inheritance are, in principle, subject to inheritance tax.
However, if a system were established to exempt inheritance tax up to a certain amount, wouldn’t more people buy government bonds?
For the elderly in particular, safely managing assets and leaving property to the next generation are important concerns.
Stocks have large price fluctuations.
Real estate is difficult to manage and sell.
Bank deposits are excellent in terms of safety and liquidity, but interest rates can be low.
Under these circumstances, if there were tax incentives for government bonds regarding inheritance tax, they could become an attractive option.
For example, allow inheritance tax incentives for a certain upper limit of the amount of government bonds for individuals held.
Limit the incentives to government bonds held for a long term.
Or, reduce the tax burden if the heir continues to hold them for a certain period.
Various system designs can be considered.
However, there is also a major problem here.
If those with assets who can afford to buy government bonds gain more tax benefits, it could lead to an expansion of the wealth gap.
Also, if inheritance tax revenue decreases, the problem of how to compensate for that source of revenue arises.
Even if the number of government bond purchasers increases, the country’s debt itself does not decrease.
Rather, there is a possibility that fiscal conditions will deteriorate due to a decrease in tax revenue.
Therefore, I do not think that unlimited inheritance tax exemption is a good idea.
Even so, if it were a preferential system limited to small, long-term holdings, wouldn’t there be room for consideration?
I think the important thing is to compare the effect of encouraging stable holding of government bonds with the impact on tax revenue reduction and fairness.
6. Benefits of citizens holding government bonds directly
There are several conceivable benefits to an increase in government bond holdings by individuals.
First, the options for citizens’ asset management will expand.
People who have managed their assets only through bank deposits until now will be able to choose government bonds.
Second, interest rate competition among banks may be encouraged.
If depositors start moving their funds to government bonds, banks may be forced to review their deposit interest rates.
Third, the holders of government bonds will become more diverse.
If many individuals, not just financial institutions, come to hold government bonds, it could lead to the formation of a stable investor base.
However, an increase in the ratio of individual holdings does not necessarily mean that the government bond market will become stable.
This is because individual investment behavior also changes depending on interest rates and economic conditions.
And fourth, it will be a catalyst for citizens to take an interest in the country’s finances.
Holding government bonds also means lending money to the country.
I think people will start to think about the country’s fiscal situation, tax revenue, expenditures, and interest rate policies as their own personal issues.
I think this is also important in terms of financial education.
7. We must not forget that government bonds also carry risks
I have considered the benefits of government bonds up to this point, but government bonds are not completely risk-free.
Japanese government bonds are financial products with high creditworthiness denominated in yen, but the sovereign credit risk is not absolutely zero.
Also, the price of general fixed-rate government bonds falls when market interest rates rise.
If sold before maturity, a loss may occur.
On the other hand, government bonds for individuals have different product characteristics than general market-traded government bonds.
Once one year has passed since issuance, they can in principle be redeemed early by the government, and the mechanism is designed so that they are redeemed at 100 yen per 100 yen of face value.
However, a predetermined amount of interest will be deducted upon early redemption.
Furthermore, there is also the risk that the real value of money will decrease due to inflation.
For example, even if the interest rate on government bonds is 2%, if prices rise by 3% every year, the asset value will decrease in terms of purchasing power.
Therefore, it cannot be said that government bonds are always more advantageous than bank deposits.
When will you use the funds?
For how many years can you invest?
Do you need to convert them to cash along the way?
The appropriate financial product changes depending on these conditions.
8. In the end, who is benefiting?
This is what I was most curious about this time.
Bank deposit interest rates are lower than government bond interest rates.
Whose profit does that difference become?
Banks raise funds from depositors and earn revenue through lending and securities investment.
If deposit interest rates are low, it has the merit of keeping funding costs down for the bank.
On the other hand, depositors may be accepting lower interest rates than government bonds in exchange for convenience and payment functions.
This can be explained as a market mechanism.
That said, it does not mean one can conclude that someone is manipulating interest rates illegally.
Bank deposits and government bonds differ in liquidity, duration, and risk.
Even so, I have one question.
Are citizens depositing their money in banks with a full understanding of this difference?
At bank counters, you are sometimes recommended investment trusts or insurance products.
Of course, there are financial institutions that handle government bonds for individuals.
However, how actively is the interest rate gap between ordinary deposits and government bonds explained?
Products that are highly profitable for banks do not necessarily align with products that are advantageous for customers.
That is where the difficulty of financial services lies.
I do not want to jump to the conclusion that banks are bad.
However, shouldn’t information for choosing financial products be provided more fairly?
9. The era of learning financial knowledge on YouTube
There is one more thing I was made to think about this time.
That is the fact that I first learned about these financial mechanisms on YouTube.
The interest rate gap between government bonds and bank deposits is information that can be found if you look for it.
The Ministry of Finance also publishes government bond interest rates.
Banks also publish deposit interest rates.
The information itself is not hidden.
However, it is quite difficult to understand what that difference means and how it relates to our asset formation.
I also have no memory of being taught this in detail at school.
Even after becoming a working adult, no one in daily life will actively explain these things to you.
In the end, you have no choice but to take an interest and research it yourself.
Now that we have YouTube and the internet, we can access this kind of knowledge.
In that sense, it has become a convenient era.
However, not everything explained on YouTube is necessarily correct.
There are likely videos that criticize financial institutions and the government more than necessary just to attract attention.
That is precisely why I think it is important to raise questions through videos and then verify them using primary sources like the Ministry of Finance or the Bank of Japan.
YouTube is an entry point for finding questions, not a place that guarantees final answers.
I felt that way this time as well.
10. What should we do from now on?
So, how should an individual who has noticed the interest rate gap between bank deposits and government bonds act?
I believe it is important to first organize your savings by purpose.
Money needed for daily life or funds for unexpected expenses should be kept in bank deposits that can be withdrawn at any time.
On the other hand, for money that you do not plan to use for several years, you might want to compare time deposits and government bonds for individuals.
When comparing, you should check the following points:
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After-tax interest rates for bank deposits and government bonds
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Deposit period or years until maturity
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Conditions for mid-term cancellation or early redemption
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Scope of protection under the deposit insurance system, etc.
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Decline in real value due to inflation
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Can it handle future interest rate hikes?
And, if you are considering purchasing government bonds, check the terms for individual government bonds published monthly by the Ministry of Finance.
It is also important to compare information from multiple financial institutions and securities companies, not just bank counters.
Above all, you need to have the knowledge to make your own judgments rather than simply accepting the products presented by financial institutions.
Conclusion: Can’t the public’s money be used more for the public’s benefit?
Today, I watched a video on YouTube about the interest rate gap between bank deposits and government bonds.
At first, I just thought it was simply strange.
However, as I thought about it, my questions expanded to include bank business models, the government bond issuance system, public asset formation, and even inheritance tax issues.
Are banks to blame?
Is there a problem with government systems?
Or are we ourselves too ignorant about finance?
The answer is likely not that simple.
However, one thing can be said.
Information for the public to decide where to deposit their money and how to manage it should be provided more clearly.
Expand the system for the government to sell bonds directly to individuals.
Consider tax systems that encourage long-term holding by individuals.
Explain the differences between bank deposits and government bonds thoroughly in financial education.
I believe such efforts have significant meaning.
Especially regarding inheritance tax incentives, although there are issues of fiscal burden and fairness, isn’t the idea of incentives up to a certain amount worth considering?
Japan has household financial assets that have been accumulated over many years.
I still think there are other ways to utilize those assets for both the stability of the citizens’ own lives and the sustainable fiscal management of the country.
Even so, it is surprising that I had to be taught something like this on YouTube to even notice it.
While I am impressed by how convenient the modern era has become, I also felt a bit conflicted.
From now on, instead of just accepting the interest rates offered by banks, I want to compare them with government bond interest rates.
And I intend to think a little more for myself about the country’s systems as well.
Today, I learned something new from YouTube once again.
*This article is a personal reflection based on information publicly available as of November 15, 2026. It does not recommend the purchase of financial products. Government bond interest rates, tax systems, and regulations are subject to change.
Reference Materials
Ministry of Finance: “Individual Government Bonds and New Over-the-Counter Government Bonds Currently Available”
https://www.mof.go.jp/jgbs/individual/kojinmuke/recruitment/
Ministry of Finance: “Frequently Asked Questions About Interest Rates on Individual Government Bonds”
https://www.mof.go.jp/jgbs/individual/kojinmuke/main/qa/answer_qc.html
Ministry of Finance: “Overview of Individual Government Bonds Plus”
https://www.mof.go.jp/about_mof/councils/study_gov_debt_management/d20261105-1.pdf