From deposits to gold: How falling FD yields are rewiring India’s savings story

As India’s interest-rate cycle begins to turn, a subtle but significant shift may already be underway in household savings behaviour — one that China experienced years ago. According to Ritesh Jain, co-founder at Pinetree Macro, a hedge fund based in Canada, sustained pressure on deposit returns has historically pushed savers out of the banking system and into hard assets, particularly gold.

In a recent analysis, Jain pointed to China’s experience when deposit yields were suppressed over a prolonged period. Chinese households, he noted, did not protest or debate policy choices publicly. Instead, they quietly reallocated their savings — away from bank deposits and towards gold and real estate.

India, he argues, may now be entering a similar phase.  

Falling FD returns, fading real yields

The Reserve Bank of India’s recent rate-cut cycle is beginning to ripple through the banking system, with major lenders trimming fixed-deposit (FD) rates. For many households, once inflation is accounted for, real returns on deposits are now close to zero — and in some cases negative.

This comes after nearly five years of cumulative inflation that has steadily eroded purchasing power. While headline CPI inflation may appear “under control” today, Jain points out that the real impact is visible elsewhere — in housing affordability, lifestyle costs and everyday expenses.

“The price shock is already baked in,” he notes, adding that households feel it as an affordability crisis rather than an inflation statistic.

When savers stop subsidising the system

As deposit returns weaken further, the choice facing savers becomes stark: continue locking money into low-yield instruments, or shift towards assets that offer at least a chance of preserving purchasing power.

Jain identifies two natural outlets for household money in such an environment. The first is higher consumption — spending today on homes, vehicles or lifestyle upgrades instead of saving in what many perceive as “dead” instruments. The second is a reallocation of long-term savings into assets, particularly physical gold and equities.

China’s experience offers a clear precedent. When deposit rates were slashed, Chinese households responded by aggressively buying gold bars, coins and real estate. Equities, however, did not see the same enthusiasm.

Why India’s response could be stronger

India may respond even more decisively, Jain argues, given the country’s structural and cultural factors. Indian households have a long-standing preference for gold, a deep scepticism of financial assets, and a lived memory of gold acting as a reliable hedge during periods of currency erosion and policy uncertainty.  

Every incremental rate cut, he suggests, does more than stimulate growth. It accelerates money moving out of bank deposits and into two channels — consumption today and gold for tomorrow.

Quiet rewiring of the financial system

Looking ahead, Jain believes the real story of the next few years may not be about stock-picking success, but about how Indian households once again anticipated macro shifts before policymakers fully acknowledged them.

“China wrote the playbook,” he says. “India is now running its own version — compress deposit returns, push savers into hard assets, and allow households to quietly rewire the financial system from the bottom up.” If history is any guide, the shift may not be loud — but it could be transformative.