Fixed deposit (FD) as an investment tool is opted by a wide demographic in India, especially by those with low-risk appetite. For investors wanting a balanced portfolio, FD is a good option. However, choosing the right bank becomes a little confusing, while parking your money in a bank FD.
The interest rate offered by banks is what drives the choice of a bank. Big banks like SBI, ICICI Bank, HDFC Bank, Kotak, Axis Bank, among others, are currently offering interest rates for tenure 5 to 10 years ranging from 6.25 per cent to 7.5 per cent for general public and senior citizen. Even though small finance banks are known to offer higher interest rates as compared to larger banks, however, with the FD rates crashing, the interest rates offered by banks such as Jana Bank, Ujjivan, and AU small finance bank are somewhat similar to the interest rates offered by bigger banks on FDs. Currently, small finance banks are offering interest rates ranging from 6.50 to 7.8 per cent, for the general public and senior citizen, for the 5 to 10 years tenure.
Even with the comparatively higher interest rate offered by small finance banks, one should consider some factors before parking their money in these banks because industry experts believe that as these banks are new in the market, they offer a high rate of interest to attract customers. Is it a bait you should take?
Note that, interest rates on fixed deposits vary depending on the banks. Currently, the maximum interest rates on FDs for investment below 2 crores, and for the 5 to 10 years tenure, ICICI and HDFC bank are offering the highest interest rates for both general public and senior citizen. The interest rates range between 7 to 7.5 per cent, for 5 to 10 years tenure, while among the small finance banks, AU small finance bank is offering the maximum interest rate ranging from of 7.3 per cent to 7.8 per cent per annum for the same tenure.
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Even though investing in small finance bank fixed deposits can fetch you higher returns, industry experts suggest, putting your money in these avenues as compared to bank FDs may be a bit risky. Hence, before opting for such a small finance bank, do your own research and take all precautions. For instance, find about the stability of those banks, look up for past track record of the government and the Reserve Bank of India (RBI) in dealing with failed banks.
To start with, investors should review how secure the bank is by checking their records and then going ahead with investing. Experts suggest it is also better to be safe than sorry. Hence, if you decide to invest Rs. 2 lakh in FDs overall, you should park only 25 per cent of the amount in a new bank's FD offering higher interest, which will limit your risk exposure and the rest is bigger banks.
Also, for senior citizens, FDs are a preferred investment option as they offer a higher interest rate as compared to those offered to regular customers. Small finance banks, however, offer an additional 0.5 – 0.06 per cent for senior citizens. Hence, the interest offered to senior citizens is also higher than other commercial banks. Along with that bank, FDs have become more attractive with the introduction of Section 80TTB, as it allows a deduction for bank interests up to Rs 50,000 to resident senior citizens.
Bank FD rates
|Banks||FD rates (%)||Tenure|
|SBI||6.25||6.75||5 years to 10 years|
|ICICI||7||7.5||5 years to 10 years|
|HDFC||7||7.5||5 years to 10 years|
|Kotak||6.25||6.75||5 years to 10 years|
|Axis||6.75||7.25||5 years to 10 years|
Source: Company website