Low savings rates drive shift to FDs

Spread between savings and term deposits hits three-year high

- Shayan Ghosh

Customers are increasingly shifting funds from low-yielding savings accounts to fixed deposits (FDs) because of the widening interest rate gap between the two, increasing deposit costs for lenders.

While savings interest rates have remained largely unchanged in the past three years, banks have significantly raised interest rates on time deposits to attract customers. For example, State Bank of India (SBI), the country’s largest lender, offers 2.7-3% on savings deposits, similar to what it paid in early 2020, while providing 6.8% on one to less than two-year term deposits.

“This is quite natural. Earlier, the delta between savings and deposit rates was quite small. As interest rates moved up, the delta has increased, and customers naturally tend to move into term deposits, which has been happening for some time," said Sandeep Batra, executive director, ICICI Bank.