Investing in green deposits: How are they different; what do they do

Banks and finance companies have a range of investment instruments that enable investors to allocate funds in schemes that support environmentally sustainable causes. Green fixed deposit is one such initiative, designed for environmentally-conscious investors.

Green deposits are simple and crafted for ease in investment. They are similar to traditional fixed deposits (FDs) where investors put in with a bank for a fixed tenure.

Green deposits are open to various entities, including individuals, Hindu Undivided Families (HUFs), sole proprietorships, societies, clubs, and non-profit organisations. The difference between regular and green deposits lies in allocation. Regular deposits are typically pooled into a common deployment fund and green deposits are solely for eco-friendly projects. Standard rules governing deposits, such as options for redemption or renewal upon maturity, apply to both types.

Green deposit funds are used for projects involved in renewable energy, clean technology, and other environmentally beneficial endeavours. These projects encompass a wide range of activities, including the financing of solar power projects, wind farms, organic farming initiatives, and the development of energy-efficient infrastructure, among others.

Banks are allowed to offer overdraft facilities to customers against green deposits. The regulatory framework allows green deposits to be denominated in Indian Rupees only. Deposits secured under this framework are safeguarded by the Deposit Insurance and Credit Guarantee Corporation (DICGC) as per the provisions of the Deposit Insurance and Credit Guarantee Corporation Act, 1961. If an investor makes a premature withdrawal after six months from the account opening, your green fixed deposit will be converted into a regular fixed deposit.

Does the interest rate on green deposits differ from regular deposits?

The interest rates on green deposits may or may not differ from those on regular deposits, as it ultimately depends on the policies set by the lender. IndusInd Bank, Federal Bank, DBS Bank India, and HDFC Ltd offer green deposits. Bank of Baroda recently launched the BOB Earth Green Term Deposit scheme, offering interest rates of up to 7.15 per cent per annum. Some non-banking financial companies offer green deposits too.