Why Savers Are Moving Money From Savings Accounts to Fixed Deposits

The way Indians hold their bank money has shifted notably over the past five years, with more savers moving funds out of low-interest savings accounts and into higher-yielding term deposits, or fixed deposits (FDs). Central bank data shows the share of savings deposits in total bank deposits fell to 28.7% in March 2026 from 34.6% in March 2022. Over the same period, the share of term deposits climbed from 55.2% to 61.6%, showing that customers are increasingly willing to lock in funds for fixed periods in return for better returns.

The main driver is the gap between savings-account rates and FD rates. Large banks currently pay only about 2.5% on ordinary savings accounts, down from roughly 6-7% a decade ago, while one-year fixed deposits fetch around 6.25%. Savings rates fell as the central bank reduced its key policy rate from 6.50% to 5.25% since January 2025, a cumulative cut of 125 basis points. When the savings-account rate sits below retail inflation, the real return turns negative, meaning the purchasing power of idle money slowly erodes. With recent retail inflation near 3.48%, savings rates are roughly 100 basis points below it.

The composition of term deposits also reveals interesting patterns. Large deposits dominate: amounts of Rs 1 crore and above made up 46.3% of all term deposits in March 2026. Savers showed a clear preference for medium-term tenures, with deposits maturing in one to three years rising to 69.8% from 50.4% in March 2022, as people tried to lock in attractive rates for longer. Households remained the single biggest source of deposits at 59.3% of the total, though some are now also turning to mutual funds and equities for potentially higher returns.

This shift matters for banks too. Savings deposits are a cheap and stable source of funds because the interest paid is low, while term deposits cost more. As the mix tilts towards FDs, the cost of funds for banks rises, which can influence lending rates and margins. At the same time, FDs give banks a more predictable funding base for supporting credit growth.

For banking and other exam aspirants, this explainer ties together several core concepts: the difference between demand deposits (savings and current accounts) and time deposits (FDs and recurring deposits), the meaning of real interest rate (nominal rate minus inflation), how repo-rate changes transmit to deposit rates, and why CASA (current and savings account) deposits are valued by banks as a low-cost funding source. A basis point equals one-hundredth of a percentage point, a term that appears often in banking questions.