FDs over savings account: What's behind changing preference, Pg16

Key Highlights:

• The share of savings deposits in Indian banks declined from 34.6% in March 2022 to 28.7% in March 2026.
• Conversely, term deposits increased from 55.2% to 61.6% during the same period, as per RBI data.
• This shift is driven by low interest rates on savings accounts (2.5% by major banks) and attractive FD rates (6.25-6.45%).
• Retail inflation at 3.48% in April 2026 means savings accounts offer negative real returns, eroding purchasing power.
• Households remain the largest source of deposits (59.3%), but are exploring mutual funds and equities.
• Larger FDs (₹1 crore and above) constitute 46.3% of total term deposits, indicating high-value depositor dominance.

Detailed Insights:

• The changing preference reflects a response to a rising interest rate environment and banks' efforts to mobilize resources for credit growth.
• The Reserve Bank of India's (RBI) decision to slash the repo rate from 6.50% to 5.25% since January 2025 has significantly influenced savings account interest rates.
• Savings accounts offer high liquidity for day-to-day expenses, while term deposits provide better returns by locking funds for fixed tenures.
• The shift is reshaping the liability profile of banks, making term deposits a more prominent component of their funding base.
• Despite the shift, households continue to be the primary contributors to India's deposit base, though their share has seen a modest decline.
• The increasing inclination towards mutual funds and equities by households indicates a search for higher returns beyond traditional banking instruments.
• The dominance of larger FDs highlights the growing importance of high-value depositors in contributing to banks' funding requirements.

Key Concepts Involved:

• Fixed Deposit (FD) / Term Deposit: A financial instrument where money is deposited for a fixed period at a predetermined interest rate.
• Savings Account: A bank account that allows depositors to store money and earn a low interest rate, offering high liquidity.
• Repo Rate: The rate at which the Reserve Bank of India (RBI) lends money to commercial banks.
• Retail Inflation: The rate at which the general level of prices for goods and services consumed by households is rising.
• Basis Point: One-hundredth of a percentage point, commonly used to denote changes in interest rates.
• Real Return: The return on an investment after accounting for the effects of inflation.
• Demand Deposits: Bank deposits that can be withdrawn on demand, including savings and current accounts.
• Liability Profile: The composition of a bank's funding sources, including deposits, borrowings, and other liabilities.