Fixed deposits are a popular and risk-free investment choice for many, especially senior citizens seeking steady returns on their savings. Many small finance banks are currently offering higher interest rates in the 8-9.5 per cent range for fixed deposits held by senior citizens. But are they a worthy bet?
Among Small Finance Banks, Unity Small Finance Bank leads with an impressive 9.50 per cent interest rate for a 1001-day tenure. Fincare Small Finance Bank follows closely at 9.21per cent for an FD for 750 days. Jana Small Finance Bank and NorthEast Small Finance Bank also offer competitive rates at 9.00 per cent for 365 days and 9.25 per cent for 555 days; 1111 days, respectively.
On the lower side, Ujjivan Small Finance Bank provides an interest of 8.75 per cent for 80 weeks and 12 months. ESAF Small Finance Bank offers a 8.75 per cent for 2 years to less than 3 years. AU Small Finance Bank is providing 8.50 per cent on an FD for an 18-month tenure.
"These banks primarily offer loans to the high-risk category of small businesses, farmers and workers in the unorganised sector. Due to the high risk, these banks are compelled to raise money from the market at a higher rate. Since FDs are one way of raising funds, these banks offer - rather, have to offer - higher interest rates to their depositors," said Satyajit Sen of Value Research.
Point to note: FDs have a lock-in period. You'd be penalised if you needed the money before that period. As a result, you'd earn lower interest rates.
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Among private sector banks, SBM Bank India provides best interest rate with 8.75 per cent on an FD for three years. DCB Bank provides 8.60 per centfor 25 months to 26 month FDs.RBL Bank follows with 8.60per cent for 18 months to 2 years. IDFC First Bank and IndusInd Bank provide 8.25per cent for 549 days to 2 years and 1 year to 2 years, respectively.
Among public sector banks, Bank of Baroda leads with a 7.75 per cent interest rate for tenures above 2 years to 3 years. Following closely is Canara Bank, offering a competitive rate of 7.75per cent for 444 days, with an additional 0.10per cent on this tenure. State Bank of India is providing 7.60 per cent interest rate for 400 days under the Amrit Kalash scheme. Bank of Maharashtra is providing the lowest rates at 7.50 per cent for 200 days.
Deutsche Bank leads the way among foreign banks, offering an attractive 8 per cent interest rate for deposits above 1 year. Following closely is Standard Chartered Bank, providing a competitive 8 per cent interest rate for deposits ranging from two years to less than 3 years. HSBC Bank is offering a decent 7.75 per cent interest rate for deposits spanning 732 days to less than 3 years.
The risk:
"Since SFBs deal with high-risk categories, your FD's risk level will be higher, too. They are more vulnerable to toxic loans (where loans aren't returned) than commercial banks such as SBI, HDFC and its like. In such worst-case scenarios, your FD will come under threat, as DICGC (an RBI division) only offers a safety net of Rs 5 lakh. Put simply, if an SFB declares bankruptcy, you'll get back only Rs 5 lakh of your deposit in 90 days. The Rs 5 lakh includes both the principal and interest amount," said Sen.
