Higher interest rates fuel demand for term deposits

New Delhi: Rising interest rates seem to be driving more people to go in for term savings plans as the share of such instruments in total bank deposits increased to 60.3 per cent in December 2023 from 57.2 per cent in March 2023, according to the data from Reserve Bank of India (RBI).

On an incremental basis, term deposits accounted for nearly 97.6 per cent of the total deposits during April-December 2023 and the shares of current account and savings account (CASA) deposits went down, said RBI’s Quarterly BSR-2: Deposits with Scheduled Commercial Banks - December 2023.

“Rising return on term deposits has been driving the compositional shift in bank deposits: the share of term deposits in total deposits increased to 60.3 per cent in December 2023 from 57.2 per cent in March 2023,” it said.

RBI further said that deposits moved to higher interest rate buckets as the share of term deposits bearing over 7 per cent interest rate rose to 61.4 per cent of the total term deposits in December 2023 from 54.7 per cent a quarter ago and 33.7 per cent in March 2023. It is almost a year that the Reserve Bank has kept the short-term lending rate or repo rate at 6.5 per cent. The benchmark interest rate was last raised in February 2023 to 6.5 per cent from 6.25 per cent due to inflation driven mainly by global developments.