- Date : 02/06/2023
- Read: 3 mins
Green fixed deposits invest the depositors’ money to specified projects aimed at promoting the use of green energy. The RBI has changed the rules of these deposits from 1st June. Know what has changed.
- Green FDs invest the accumulated corpus into green projects.
- Per new rules, banks will have to disclose the allocation of green FD funds.
- The new rules are effective from 1st June 2023.
- Green FDs are like normal FDs and offer guaranteed returns on investment.
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While there are many types of fixed deposits (FDs) that give guaranteed returns, green fixed deposits are different. These schemes invest the money in projects which are qualified under the United Nations Sustainable Development Goals. These projects are engaged in the production or distribution of green transportation, renewable energy, waste management, etc.
Earlier banks were allowed to invest the money received through green deposits in any of these projects, the rules have changed. Effective from 1st June 2023, banks will now have to inform the Reserve Bank of India (RBI) about their investment strategy. The assets into which banks invest should be disclosed per the new rules.
The RBI has initiated this change to promote transparency so that it can check whether banks invest in qualified green projects per the green FD norms.
Green deposits v/s fixed deposits – the difference
Besides the mode of investment, green deposits are no different than fixed deposits. You can deposit any amount, subject to a minimum limit, choose the tenure and you will receive guaranteed returns on your investment.
You can choose to invest in cumulative or non-cumulative green deposit schemes. The former accumulates the interest over the deposit tenure and give it out in a lump sum. In the latter, the interest earned is paid back at regular intervals.
How do green deposits work?
Regulated entities can offer green fixed deposits to their customers. Different investors invest in the FD after which the bank allocates the corpus towards eligible green projects. The bank earns interest on the amount lent to the projects. This interest is, then, passed on to the depositors after the bank keeps its margin.
Also, read - FD rates are rising. Read whether you should invest now or after a month.
Things to know about green fixed deposits
Here are some important aspects of green fixed deposits that you should know about –
- Only regulated entities can offer such FDs to customers. Many banks are authorized regulated entities. Check the list of banks offering such FDs to pick the right financial institution.
- The interest rates vary across banks and might go up to 7.3% per annum. Senior citizens can enjoy a higher interest rate.
- The tenure goes up to 10 years or 120 months.
- Deposit amounts up to Rs.5 lakhs enjoys insurance coverage from the Deposit Insurance and Credit Guarantee Corporation (DICGC). If the bank default on repayments, the DICGC pays the deposited amount back to the investor.
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The bottom line
You can do you bit towards environmental causes by investing in green fixed deposits. Understand these deposits, how they work and check which banks offer them. Compare the interest rates and choose the best bank for maximum returns.
Also Read - Know about the sovereign green bonds issued by RBI
