Why Indians are moving money from savings accounts to FDs, according to RBI report

📌 Summary:

• RBI's "Annual Basic Statistical Return on Deposits" shows a clear five-year shift: savings deposits' share fell to 28.7% (March 2026) from 34.6% (March 2022); term deposits' share rose from 55.2% to 61.6%
• Trigger: large interest-rate differential — SBI offers just 2.5% on savings accounts vs 6.25% on 1-year FDs and 6.45% on 2-year FDs; HDFC and ICICI also at 2.5% on SB accounts
• Macroeconomic context: RBI cut repo rate from 6.50% (Jan 2025) to 5.25% (cumulative 125 bps decline) — banks responded by lowering SB rates and offering attractive FD rates to mobilise resources for credit growth
• Real-return problem: SB rates ~100 bps BELOW April 2026 retail inflation of 3.48% — money in savings accounts loses purchasing power; real return is negative
• Banking system snapshot (May 15, 2026): demand deposits (SB + current) Rs 31.65 lakh crore; term deposits Rs 225.23 lakh crore — current accounts pay zero interest
• Liability profile reshaped: term deposits strengthen banks' resource mobilisation but at higher cost than SB deposits; SB has been a stable low-cost funding source
• Household behaviour: households remain the largest source (59.3% of total deposits, March 2026), but increasingly turning to mutual funds and equities for higher returns
• Concentration in term deposits: deposits of Rs 1 crore+ now account for 46.3% of total term deposits — large depositors dominate

🎯 UPSC Relevance: GS3 Economy (banking, monetary policy transmission, financial inclusion, household financial behaviour); useful for Prelims Banking System and BoP/financial-system facts.

📝 Prelims Facts:

• RBI report: Annual Basic Statistical Return (BSR) on Deposits
• Repo rate cut Jan 2025 → 5.25% (June 2026): cumulative 125 bps reduction
• SBI 1-year FD: 6.25%; SB rate: 2.5%
• Retail inflation April 2026: 3.48%
• Demand deposits (May 15, 2026): Rs 31.65 lakh crore; Term deposits: Rs 225.23 lakh crore
• Households' share of total bank deposits (March 2026): 59.3%
• Term deposits ≥ Rs 1 crore: 46.3% of total term deposits

🔑 Key Term: CASA Ratio — the share of Current Account and Savings Account deposits in a bank's total deposits; a higher CASA means cheaper funds and better margins. The shift to FDs (high-cost deposits) compresses CASA and pressures bank net interest margins.