If I read you literally, the answer to that question is “yes”. But if you meant “risk” instead of “return” in the above question, then the answer is “no”.

I know I make hastily worded comments, but look at the entire comment, I was walking along the X axis of the yield curve, I started off with “on demand” deposits meaning no term restrictions, etcetera.

so, rest assured, I was not disregarding term of investment. and that I was not conflating 20 year desposits and checking accounts.

let’s get back to your more interesting second point:

why do you think FRB is close to zero risk? It is investment no? If it is indeed investment, then the returns on said investment *should be shared with the depositors* no?

Second point: Why are you assuming without any evidence that FRB is high risk?

finally!
Contrary to your suspicions, I was not confusedly conflating terms and durations of investments. I do not know what gave you that idea. Let us set aside your moral hazard comment — interesting as it is — for the moment and get back to my remark in an earlier comment:

no matter the term of investment, bank inestments have ~ zero risk to the consumer (how can it be “low” when it is fully backed by RBI in India, FDIC in US) Under this guise the banks give a low return. You say this is “as it should be”.
But wait — the point was that the bank is indulging in fractional reserve banking, and ergo higher risk investment. Which is insured by RBI/FDIC.
The banks seem to be getting a free ride.
Do you not see a problem in this?

In the second place, you’ve moved to fixed deposits and are now asking why they give such low returns. The answer is: they are low risk, because their default rate is low. No, they are not zero risk, but the difference is small enough for the average consumer to ignore. No, they do not give a lower return than government bonds, but yes, they do give a lower return than any other kind of investment, which is as it should be.

Finally, you may say that part of the low risk is because the RBI guarantees the safety of the deposits. Yes it does, but this works both ways. Government insurance must increase the moral hazard for banks. If even after this the probability of a bank going bellyup is so low as it is now, then banks would have an even lower default rate if they were not insued.

I thought I was expansive enough in previous comment no — all along the yield curve, consumer banks give lower yields, e.g. even with n yr fixed deposits, and consumers are ok with that because all along the yield curve, they view these deposits as having “zero risk”. How can it be so?

1. fractional reserves ==> greater risk
2. greater risk ==> greater return
3. greater risk ==> non zero risk
4. consumer banks ==> zero risk, low return
5. consumer banks ==> fractional reserves

But let’s continue to the right along the X axis of yield curve. The yields of consumer bank “locked” or “fixed” deposits are pathetic compared to what the market and investment banks/planners would give you. Why would you lock your money up then?
Because of the “zero” risk! But how do the banks make money then?

So my main point holds true throughout the yield curve: that banks seem to have this magical risk nullification machine that I want a piece of. That is the only explanation for FRB. Either that or swindling. Take your pick.