A Study on the Evolution of Fixed Deposit Schemes in India

Fixed Deposits have always been a popular investment option in India. They offer a safe and secure way to grow your savings while earning a fixed interest rate. But have you ever wondered how these schemes have evolved over the years? In this article, we will explore the historical and modern trends in fixed deposit schemes, providing you with valuable insights to make informed financial decisions.

Evolution of Fixed Deposit Schemes: A Timeline

Fixed deposits have been a staple of banking for many decades, with origins tracing back to the early 20th century.

• 1980s-1990s: Economic Liberalisation

The Indian economy was liberalised in the 1990s, which led to important changes in the banking sector. Banks began to offer more competitive interest rates on FDs to attract deposits. This period also saw the introduction of various types of fixed deposits, including cumulative and non-cumulative options, catering to different investor needs.

• Introduction of Deposit Insurance

In India, the establishment of the Deposit Insurance and Credit Guarantee Corporation (DICGC) in 1978 provided a safety net for depositors. This insurance today covers deposits up to ₹5 lakh, enhancing the attractiveness of FDs as a safe investment option.

• Interest Rate Deregulation on FDs in 1990s

The deregulation of interest rates on FDs in the 1990s allowed banks to set their own rates, leading to increased competition. This resulted in higher returns for depositors, making FDs more appealing compared to traditional savings accounts.

• Interest Rate Deregulation on Savings Accounts in 2011

The deregulation of savings interest rates in India occurred on October 25, 2011, when the Reserve Bank of India (RBI) allowed banks to set their own interest rates on savings accounts. 

Technological Advancements since 2000s

1. Online Banking

The rise of digital banking in the 2000s transformed how customers interacted with banks. Opening and managing FDs became more accessible through online platforms, allowing for easier comparison of interest rates and terms across different banks.

2. Innovative Products

Banks began to introduce innovative FD products, such as:

• Tax-Saver FDs: These FDs provide tax benefits under Section 80C of the Income Tax Act, encouraging long-term savings.
• Flexi FDs: Combining features of savings and fixed deposits, these allow for partial withdrawals while still earning interest.

Modern FD Trends: Digitalisation and Customisation

In recent years, fixed deposit schemes have witnessed significant changes driven by digitalisation and customer demand for more customization. Here are some key modern FD trends:

• Online Account Opening: With the advent of digital banking, it has become easier than ever to open a fixed deposit account online. This convenience allows individuals to save time and effort by avoiding branch visits.
• Customised Interest Payment Options: Banks now offer various interest payment options to suit individual preferences. This means individual customers can decide to receive interest payouts annually, monthly or quarterly. 
• Special FD Schemes: To cater to specific financial goals or requirements, banks have started offering special fixed deposit schemes. For example, senior citizens can avail higher interest rates with senior citizen FDs.
• Flexibility in Premature Withdrawals: In the past, premature withdrawals from fixed deposits were penalised heavily. However, many banks now offer more flexibility in terms of premature withdrawal penalties. This allows individuals to access their funds in case of emergencies without incurring substantial losses.

Historical FD Trends for Interest Rates in India 

The historical trend of fixed deposit (FD) in India has experienced significant fluctuations influenced by various economic factors, including inflation, monetary policy, and global economic conditions. 

Please note: The table above gives you a broad indication of historical FD trends and not precise rates. During a particular period, interest rates between banks itself on FD rates can vary substantially.