What is Green Deposit? Meaning, How It Works & Benefits
Reviewed by: Fibe Research Team
- Updated on: 15 Sep 2026
Growing awareness about climate change has encouraged individuals and businesses to consider how their financial choices can support environmental sustainability. One such option is a green deposit.
A green deposit works broadly like a conventional fixed-term deposit. You place money with an eligible bank or financial institution for a specified period and earn interest according to the agreed terms. The key difference is in how the institution uses the funds raised through these deposits.
The proceeds of green deposits are earmarked for financing eligible environmentally sustainable activities and projects.
The Reserve Bank of India (RBI) introduced its Framework for Acceptance of Green Deposits with effect from 1 June 2023. The framework aims to encourage the flow of funds towards green projects while introducing safeguards against greenwashing.
Read on to understand the green deposit meaning, how it works, who can invest and the benefits you should consider before choosing one.
Table of Contents
What is a Green Deposit?
A green deposit is an interest-bearing deposit accepted for a fixed period, where the proceeds are earmarked for allocation towards eligible green finance activities and projects.
Under the RBI framework, green-deposit funds may be allocated towards areas such as:
- Renewable energy
- Energy efficiency
- Clean transportation
- Climate-change adaptation
- Sustainable water and waste management
- Pollution prevention and control
- Green buildings
- Sustainable management of natural resources and land use
- Terrestrial and aquatic biodiversity conservation
The RBI framework applies to scheduled commercial banks, including small finance banks subject to specified exclusions, as well as eligible deposit-taking NBFCs and housing finance companies.
Unlike a regular fixed deposit, therefore, a green deposit comes with an additional commitment from the issuer regarding the use of the funds raised.
How Does a Green Deposit Work?
A green deposit is similar to a conventional term deposit from the depositor’s point of view, but the institution follows a defined process for allocating the money.
Here is how it broadly works:
- You place the deposit
- You select the deposit amount and available tenure according to the financial institution’s green-deposit product.
- The institution pays interest
- You earn interest according to the rate and other conditions agreed when opening the deposit.
- Funds are earmarked for green finance
- The institution allocates the proceeds towards eligible environmentally sustainable projects under its green-financing framework.
- Unallocated money is managed separately
- Until the funds can be allocated to eligible green projects, RBI permits regulated entities to temporarily park the proceeds in specified liquid instruments with a maximum maturity of one year.
- The institution reports on fund utilisation
- The RBI framework contains requirements relating to disclosures, third-party verification or assurance and environmental impact assessment.
An important point for depositors is that the institution must continue paying the agreed interest even if the proceeds have not yet been allocated to a green project.
Who Can Invest in a Green Deposit?
Eligibility for green deposits depends on the institution offering the product.
Depending on the bank and deposit scheme, eligible depositors may include:
- Resident individuals
- Senior citizens
- Hindu Undivided Families (HUFs)
- Sole proprietorships
- Partnerships and other eligible businesses
- Societies
- Clubs
- Non-profit organisations
- Companies and other eligible entities
- NRIs, where specifically permitted by the issuer
For example, ICICI Bank’s educational guidance on green deposits identifies individuals, HUFs, sole proprietorships, societies, clubs and non-profit organisations among the categories that may participate in such deposits.
However, these categories should not be treated as universal eligibility criteria. Each bank or financial institution determines who can invest in its particular green-deposit scheme.
You should therefore check the issuer’s latest eligibility, residency and KYC requirements before applying.
Green Deposit Interest Rate
There is no single green deposit interest rate in India.
Rates depend on factors such as:
- Bank or financial institution
- Deposit tenure
- Deposit amount
- Callable or non-callable structure
- Depositor category
- Senior-citizen eligibility
- Prevailing deposit rates at the time of investment
Importantly, the RBI has clarified that its deposit regulations do not provide for a separate differential interest rate simply because a deposit is green. Interest must be paid according to the applicable deposit rules and agreed terms.
Banks can still offer green-deposit products with specific tenures whose prevailing rates differ from other tenures.
For example, SBI currently states that its Green Rupee Term Deposit is available for 1,111, 1,777 and 2,222 days at par with the applicable card rate, effective 1 May 2026.
Another example is the Central Bank of India’s currently published Cent Green Deposit rates:
| Tenure | General Public | Senior Citizen |
|---|---|---|
| 1,111 days | 6.25% p.a. | 6.75% p.a. |
| 2,222 days | 6.50% p.a. | 7.00% p.a. |
| 3,333 days | 6.50% p.a. | 7.00% p.a. |
These are the rates currently displayed by Central Bank of India, with the general-public rates shown as effective from 10 December 2025. Deposit rates are subject to revision.
Therefore, always check the financial institution’s official website for the latest rate immediately before investing rather than relying on an older comparison table.
Advantages of Opting for a Green Deposit
Green deposits combine characteristics of fixed-term deposits with a defined environmental use of the funds raised.
Financial Returns
Like other term deposits, a green deposit earns interest according to the rate agreed at the time of booking.
Since the return is not directly linked to stock-market movements, it can provide greater predictability than market-linked investments.
However, a green deposit does not automatically offer a higher interest rate than a regular FD. Compare the rates and tenures available before investing.
Environmental Impact
The primary differentiating feature of green deposits is the intended use of proceeds.
Under the RBI framework, institutions offering green deposits must earmark funds for eligible environmental activities such as renewable energy, clean transportation, energy efficiency, sustainable water management and green buildings.
This allows depositors to align a portion of their savings with environmental objectives without directly selecting individual green projects themselves.
Fixed-Income Stability
Green deposits can offer the predictable return structure associated with term deposits.
However, their level of protection depends on the type of institution accepting the deposit.
For eligible bank deposits, DICGC insurance currently covers principal and interest together up to ₹5 lakh per depositor per bank in the same right and capacity.
This does not mean every product marketed as a green deposit has identical protection. In particular, the DICGC states that deposits mobilised by NBFCs are not covered by DICGC deposit insurance.
You should therefore check the issuer as well as the deposit terms rather than assuming the word ‘green’ makes the product risk-free.
Portfolio Diversification
A green deposit can add a fixed-income and sustainability-oriented component to a broader investment portfolio.
For example, an investor who holds equities, mutual funds or other market-linked assets may use term deposits as part of the relatively stable portion of the portfolio.
However, a green deposit is still fundamentally a deposit product. Simply replacing a regular FD at the same bank with a green FD does not necessarily provide significant diversification by itself.
Effective diversification depends on factors such as:
- Asset classes
- Issuers
- Maturities
- Credit exposure
- Liquidity requirements
- Investment objectives
Supports Sustainable Finance
Choosing green deposits may also encourage financial institutions to mobilise more capital for environmentally sustainable activities.
The RBI framework requires regulated entities offering these deposits to have policies and financing frameworks governing the allocation of proceeds, helping make the use of funds more transparent.
Benefits for Senior Citizens
Some banks offer senior citizens an additional interest rate on their green-deposit products, similar to their treatment of other eligible term deposits.
However, there is no universal additional rate of 0.25% or 0.50% applicable to every green deposit.
For instance, Central Bank of India’s currently published Cent Green Deposit rates provide a 0.50 percentage-point higher rate for senior citizens across its three listed tenures.
The exact benefit depends on the institution, tenure and product conditions.
Things to Consider Before Investing in a Green Deposit
While green deposits offer several benefits, consider these factors before investing:
Limited Tenure Options
Some green-deposit schemes are available only for specific tenures.
For example, SBI’s Green Rupee Term Deposit currently offers three specific tenures – 1,111, 1,777 and 2,222 days.
This may offer less flexibility than a conventional FD that provides a wider range of tenure options.
Premature Withdrawal Rules
The RBI’s green-deposit framework does not impose a general restriction on premature withdrawal.
However, premature withdrawal remains subject to the normal deposit regulations and the issuer’s applicable product conditions.
Depending on the deposit, early withdrawal may result in:
- A lower applicable interest rate
- Premature withdrawal penalties
- Other conditions specified by the institution
Check these terms before opening the deposit.
Tax Treatment
A green deposit does not automatically receive special tax benefits merely because the proceeds are used for environmental purposes.
Interest earned is generally subject to the same applicable tax rules as interest from other similar deposits.
Check the latest income-tax provisions or seek professional tax advice where required.
Compare Returns
The environmental purpose of a green deposit does not necessarily mean it offers better returns than a conventional fixed deposit.
Compare:
- Interest rate
- Effective annual return
- Tenure
- Premature withdrawal terms
- Senior-citizen benefit
- Deposit insurance
- Issuer creditworthiness
before investing.
Green Deposit vs Regular Fixed Deposit
The main difference between a green deposit and a regular FD lies in how the financial institution allocates the money raised.
| Parameter | Green Deposit | Regular Fixed Deposit |
|---|---|---|
| Primary purpose | Funds are earmarked for eligible green activities and projects | Funds are available to the institution for general permitted banking or financing activities |
| Interest | Fixed according to applicable deposit terms | Fixed according to applicable deposit terms |
| Returns | Not automatically higher because it is a green deposit | Depends on issuer, tenure and deposit amount |
| Tenure | May be available only for specific green-deposit tenures | Usually available across a wider range of tenures |
| Environmental allocation | Yes | No specific green allocation requirement |
| Premature withdrawal | Depends on issuer and applicable deposit rules | Depends on issuer and deposit terms |
| Tax treatment | Generally follows applicable term-deposit taxation rules | Generally follows applicable term-deposit taxation rules |
| Deposit insurance | Depends on issuer; eligible bank deposits may receive DICGC coverage | Depends on issuer; eligible bank deposits may receive DICGC coverage |
A green deposit may therefore appeal to someone who wants the characteristics of a term deposit while also directing funds towards environmentally sustainable finance.
FAQs on Green Deposits
1.Are green deposits a safe investment option?
Green deposits issued by banks generally have the characteristics of conventional term deposits and are not directly linked to stock-market fluctuations.
However, calling every green deposit completely risk-free would be inaccurate.
Eligible bank deposits are covered by DICGC up to ₹5 lakh per depositor per bank, including principal and interest, subject to the applicable rules.
Deposits accepted by NBFCs are not covered under DICGC deposit insurance. The safety of any deposit should therefore be assessed based on the issuer and applicable protections, not simply because it carries a green label.
2.Can individuals participate in green deposit programmes, or are they only for businesses?
Yes. Individuals can invest in green deposits where the institution’s scheme permits them.
Depending on the issuer, green deposits may also be available to HUFs, businesses, societies, clubs, non-profit organisations and other eligible entities.
Always check the specific scheme’s eligibility criteria.
3.What is the minimum amount required to open a green deposit?
There is no single minimum amount applicable to all green deposits.
The minimum investment is decided by the institution offering the scheme.
For example, Central Bank of India’s Cent Green Time Deposit currently specifies a minimum deposit of ₹50,000.
Other banks may have considerably lower or higher minimum amounts. Check the current product terms before investing.
4.Can I withdraw a green deposit before maturity?
In many cases, yes.
The RBI has clarified that its Green Deposit Framework itself does not restrict premature withdrawal. However, the normal rules governing the deposit and the issuer’s product conditions continue to apply.
Premature withdrawal may lead to a lower applicable interest rate or a penalty, depending on the scheme.
Some non-callable deposits may also have restrictions on early withdrawal. Therefore, check whether your green deposit is callable or non-callable before investing.
5.What is the difference between a green deposit and a regular fixed deposit?
Both are fixed-term deposit products where you deposit funds for an agreed tenure and earn interest.
The main difference is the use of proceeds.
With a green deposit, the institution earmarks the money raised for eligible green finance activities such as renewable energy, energy efficiency, clean transportation, waste management and green buildings.
A regular fixed deposit does not carry this specific environmental allocation requirement.
Apart from this distinction, features such as interest rates, premature withdrawal, senior-citizen benefits and deposit insurance depend on the financial institution and specific deposit product.
