Low savings rates drive shift to FDs

livemint.com:

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.

Batra attributed the 25.8% growth in ICICI Bank’s term deposits from a year earlier, compared to a 9% growth in current and savings accounts (CASA), to customers’ search for higher rates. In fact, ICICI Bank’s savings deposits grew 6.6% in the three months to June, lower than the 14.8% growth in current account funds, where banks do not pay interest on deposits. The rate differential between savings and term deposit rates stood at a three-year high of 260 basis points (bps), showed data from the Reserve Bank of India (RBI).

The gap was 220bps and 230bps in FY22 and FY21, respectively. The data, which considers rates on savings and one-three year term deposit rates of the top five banks, shows a 260bps gap between the highest term deposit rate and the highest savings rate among these banks. The latest dataset available is up to 19 August 2022 and was released in