Green Fixed Deposit: Interest Rate, Features, Benefits & All You Need to Know
Addressing growing concerns like global warming and pollution, Green Fixed Deposits have been launched by banks and NBFCs as a unique investment avenue. This innovative instrument not only enables individuals to earn interest and receive money upon maturity, similar to a regular fixed deposit but also ensures that the invested money is channelled towards sustainable development projects.
By exploring the meaning of green deposits, features, interest rates, and examples, this blog aims to provide a comprehensive insight into how Green FDs stand as a testament to the blend of financial growth and environmental consciousness.
What is a Green Fixed Deposit?
A green fixed deposit is a fixed-income instrument for investors looking to invest their cash reserves in sustainable and eco-friendly initiatives. Like a regular FD, you deposit a lump sum with a bank and earn a fixed interest on it. However, in this case, the deposit proceeds are used to finance projects under the United Nations Sustainable Development Goals (SDGs). These include green transportation, renewable energy, waste management, etc.
The idea behind the green fixed deposit schemes is straightforward – banks use these deposits to issue loans that support ESG (Environmental, social, and governance) projects.
For corporates, Green FDs serve the purpose of integrating the sustainability agenda into treasury activities. So, if you operate a business with limited options to invest in environmentally beneficial initiatives, green FDs can prove to be an ideal choice.
In 2020, HSBC became the first foreign bank in India to announce the launch of a green fixed deposit scheme, entering a club of a select few global banks to bring forth this proposition.
Besides HSBC, HDFC, DBS, Federal Bank, Union Bank, IndusInd Bank etc., are other banks that offer such a scheme.
Also Read: Experience financial growth with unmatched Bajaj Finance FD Rates
How Does a Green FD Work?
Like a standard fixed deposit, a green fixed deposit (green FD) also focuses on environmental sustainability. This is how it works:
Environmentally friendly projects: When you invest in a Green FD, the bank or financial institution uses your funds exclusively to support programmes that promote environmental sustainability. A few examples are the construction of green infrastructure, waste management, pollution control, and renewable energy initiatives.
Interest Income: A Green FD accrues interest like a standard FD over time. Although the interest rate may differ between banks and NBFCs, it is often comparable with standard FD rates.
Withdrawal and Maturity: Green FDs have a fixed term; at maturity, the investor receives both the principle and accumulated interest. Premature withdrawals might be permitted, but they usually incur fees.
Tax Repercussions: Like standard FDs, interest on Green FDs is typically taxable. However, it’s a good idea to ask the bank or financial institution if there are any unique tax advantages for Green FDs.
Green FD Interest Rates
Multiple banks currently offer Green FDs for retail investors. If you’re an eligible investor, you can get upwards of 7% for your FD. For instance, the interest rate for monthly deposits made under the Green and Sustainable Deposit Scheme of HDFC is 7.25% per year for 24 to 35 months.
According to the details on HDFC’s website, it gives 7.3% interest on deposits made for 36 to 60 months and 7.2% on deposits made for 61 to 120 months. Senior adults are eligible for an additional 0.25% annual interest rate on deposits up to Rs 2 crore.
Features & Benefits of Green Fixed Deposit
- Both retail and corporate customers can invest in a green fixed deposit and earn assured returns.
- The interest rates vary from bank to bank. However, senior citizens are eligible for a 0.25% extra interest rate for deposits up to Rs. 2 crores.
- An additional 0.1% interest rate per annum will be applicable on deposits up to Rs. 50 lakhs if you make deposits online.
- The tenure of the green FD ranges from 18 months to 10 years, depending on the bank.
- Premature withdrawal is allowed after the first three months of account opening. If you are an individual investor and withdraw funds after 3 months but before 6 months, the interest you earn will be a flat 3%, regardless of applicable rates. However, premature withdrawals in the case of non-individual investors will attract no interest.
- On premature withdrawals after six months of account opening, a penalty of 1% is charged. Your deposits will attract a 1% lower interest than the applicable rates.
- Further, if you opt to withdraw prematurely after six months since account opening, your green FD will be converted to a regular FD.
- Deposits of up to Rs 5 lakhs are insured.
- You can avail of an overdraft facility against the green FDs as well. However, on availing of such a facility, the green FD gets converted to a regular FD.
Disclaimer: The aforementioned features are only indicative. Exact features and benefits may vary for different financial institutions. Investors are advised to confirm the same from the concerned institution before investing.
Who Can Invest in Green FD?
Virtually any individual in his capacity can invest in Green FDs. However, for the sake of exhaustiveness, here’s the list of all entities that can invest in Green FDs:
- Hindu Undivided Families (HUFs)
- Companies and Corporates
- Charitable Organizations
- Partnership Firms and LLPs
- Senior Citizens
- Associations and Clubs
- Educational Institutions
Where can you Invest?
There are multiple avenues you can invest in. Here are some of the most typical choices for investing in Green FDs:
- Non-Banking Financial Companies (NBFCs)
- Microfinance Institutions
- Credit Unions and Cooperatives
- Online Platforms
- Specialized Green Banks
Climate change has led to unprecedented temperature increases and disrupted weather patterns in India and worldwide. Hence, investing in projects that are ESG-sensitive is crucial to fulfilling your duties as responsible global citizens. Green FDs fit the bill perfectly as they assure fixed returns and ensure that your capital contributes to the country’s greater socio-economic good, thus putting your money to work in more ways than one.
FAQs about Green Fixed Deposits
What is ESG investing?
ESG stands for Environmental, Social, and Governance. ESG investing essentially means investing in those instruments that contribute to ESG causes. One example of ESG investing is ESG funds that invest in firms conscious of the environment, are socially responsible and maintain high corporate governance standards. Green deposit is an option available under the ESG investment category.
Which banks provide green fixed deposits?
IndusInd Bank, HDFC, Union Bank, Federal bank, HSBC, DBS etc., are some institutions offering green fixed deposit schemes in India.
Do senior citizens receive a higher interest rate on green FD investments?
Yes. Senior citizens are paid an interest rate higher by 0.25% to 0.5%, especially for deposits below Rs 2 crores.
How do green fixed deposits work?
When you invest in a green fixed deposit, the bank uses the funds to extend loans for projects that support the United Nations Sustainable Development Goals, which include renewable energy, green transportation, waste management, etc.
Which bank has a green fixed deposit?
Several banks offer Green Fixed Deposits, such as Yes Bank, IDFC First Bank, and Axis Bank, among others.
What are the rules for green deposits?
The rules for Green Deposits vary by bank but generally include guidelines on minimum deposit amounts, tenure, interest rates, and using deposited funds for environmentally sustainable projects.