Banks now offer low interest rates on savings bank accounts.
HDFC Bank also offers 6.25% on one-year FDs and 2.5% on savings bank accounts.
Purchasing power erodesWhen the savings bank deposit rate is below retail inflation, the real return on savings is negative.
Consequently, savings deposits help banks mobilise funds at a relatively lower cost while ensuring depositors retain flexibility over their savings.
Larger FDs dominateA closer look at term deposits shows that larger deposits continued to dominate.
The composition of bank deposits in India has undergone a significant shift over the past five years, with savers increasingly moving their money from low-yield savings accounts to higher-return term deposits, according to the Reserve Bank of India’s latest data.
The RBI said the share of savings deposits in aggregate bank deposits declined sharply to 28.7% in March 2026 from 34.6% in March 2022, reflecting changing preferences among depositors in a rising interest rate environment. In contrast, the share of term deposits rose from 55.2% to 61.6% during the same period, indicating that customers were increasingly willing to lock in funds for fixed tenures in exchange for better returns, the RBI’s ‘Annual Basic Statistical Return on Deposits’ report says.
Low interest rates on SB accounts
The trend of declining savings bank rates gathered momentum during 2025-26 as banks continued to offer attractive rates on fixed deposits to mobilise resources and support credit growth. As a result, overall deposit growth strengthened across the banking system.
Banks now offer low interest rates on savings bank accounts. SBI, the largest bank, offers just 2.5% interest on SB accounts. SB rates have fallen from around 6-7% in the last ten years.
On the other hand, SBI offers 6.25% on one-year FDs and 6.45% on two-year deposits. HDFC Bank also offers 6.25% on one-year FDs and 2.5% on savings bank accounts. ICICI also offers 2.5% on SB accounts. SB rates declined as the RBI slashed repo rates — since January 2025, the RBI has reduced the repo rate from 6.50% to 5.25%, a cumulative decline of 125 basis points.
Purchasing power erodes
When the savings bank deposit rate is below retail inflation, the real return on savings is negative. In simple terms, the purchasing power of money in a savings account is eroding over time.
The current SB rates of banks are nearly 100 basis points lower than the April retail inflation level of 3.48%.
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Demand deposits (SB and current account) of the banking sector were Rs 31.65 lakh crore and term deposits Rs 225.23 lakh crore as of May 15, 2026, as per RBI data. Current account doesn’t offer any interest rate.
Savings account deposits provide customers with easy access to their money, allowing withdrawals at any time without penalties or loss of principal. This high degree of liquidity makes them the preferred choice for households to meet day-to-day expenses and maintain emergency funds. For banks, savings deposits have long served as a stable and low-cost source of funding, since the interest rates paid on these accounts are substantially lower than those offered on fixed or term deposits. Consequently, savings deposits help banks mobilise funds at a relatively lower cost while ensuring depositors retain flexibility over their savings.
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The RBI data indicates that while households continue to anchor India’s deposit base, savers are increasingly favouring fixed deposits over traditional savings accounts, reshaping the liability profile of banks and strengthening the role of term deposits in the financial system.
Households largest source
Households remained the single largest source of bank deposits despite a modest decline in their share. Deposits from the household sector accounted for 59.3% of total deposits at the end of March 2026, the RBI report says.
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However, households are increasingly turning to mutual funds and equities as preferred investment avenues, attracted by the prospect of higher returns compared to traditional savings instruments like FDs. The contribution of other sectors increased. The share of deposits from the non-financial sector rose to 18.5% from 17.7% a year earlier, while deposits from financial corporations increased to 7.8% from 6.8% over the same period.
Larger FDs dominate
A closer look at term deposits shows that larger deposits continued to dominate. Deposits of Rs 1 crore and above accounted for 46.3% of total term deposits as of March 2026. Within this category, deposits of Rs 5 crore and above alone constituted 34.8%, underscoring the growing importance of high-value depositors in banks’ funding base. At the other end of the spectrum, deposits of up to Rs 5 lakh accounted for 17.8% of total term deposits, according to the RBI report.
Depositors also showed a clear preference for medium-term fixed deposits. The share of term deposits with an original maturity of one to three years rose steadily to 69.8% in March 2026 from 50.4% in March 2022. Meanwhile, the share of deposits with maturities of up to one year declined sharply to 8.8% from 16.7% during the same period. The trend suggests that customers sought to lock in favourable interest rates for longer periods.
The RBI also reported a major shift in the interest-rate profile of deposits. The share of term deposits earning less than 7% interest surged to 61.8% in March 2026, compared with 27.3% a year earlier. This reflects the changing interest rate cycle and the repricing of deposits across the banking system.
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Meanwhile, senior citizens continued to account for a stable share of bank deposits. Their contribution remained broadly unchanged in the range of 19.8-20.2% over the past four financial years and stood at 20% at the end of March 2026.
Growth in deposits
According to the RBI, deposits with scheduled commercial banks (SCBs) grew 11.5% year-on-year as of end-March 2026, compared with 10.6% growth recorded a year earlier. Significantly, bank branches across all population groups registered double-digit deposit growth during the year, underlining the broad-based nature of the expansion.
Public sector banks emerged as the biggest contributors to deposit mobilisation during FY26, accounting for 50.8% of incremental deposits raised by the banking system. Private sector banks followed with a contribution of 38.6%, highlighting the dominant role played by these two segments in attracting fresh savings. The RBI’s data also pointed to a gradual decline in the role of regional rural banks (RRBs) in deposit mobilisation. The share of deposits held by RRBs fell to 2.9% in March 2026 from 3.2% four years earlier, suggesting that larger commercial banks continued to gain ground in attracting household and institutional deposits.
