Real returns from FDs remain in the red: Savers reliant on bank deposits continue to lose

By FE Bureau9 days ago

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The government may have reversed its decision to lower rates of small savings schemes, but savers who rely on bank deposits continue to lose.

The negative returns from deposits have been accompanied by a drop in household savings. Representative Image

The government may have reversed its decision to lower rates of small savings schemes, but savers who rely on bank deposits continue to lose. February was the 10thstraight month of negative real returns from fixed deposits (FDs). While some lenders like State Bank of India (SBI) and Housing Development Finance Corp (HDFC) have raised deposit rates in recent months, next weeks monetary policy review could determine the future course of rates.

The return on a one-year retail term deposit with SBI adjusted for tax and inflation stood at -1.53% in August. A one-year deposit with the country’s largest lender earned interest at the rate of 5%, which works out to a 3.5% effective yield, assuming a tax rate of 30%. A headline consumer inflation rate of 5.03% resulted in a negative return for the depositor. Depositors lose relatively less now as inflation has eased from the highs seen in the latter half of 2020 and repo rate cuts have not happened.

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